SANTA FE – Democrats and Republicans alike sound ready to restore funding for New Mexico colleges and universities when they head back to the Roundhouse next week for a special session.
But a proposal to reshape the tax code – an immediate priority of Gov. Susana Martinez – could be in for some real turbulence.
That much was clear Friday after Martinez met with legislative leaders as they try to resolve a budget impasse that’s left New Mexico without a budget in place for higher education and legislative agencies in the fiscal year starting July 1.
The Republican governor and Senate Majority Leader Peter Wirth, D-Santa Fe, each expressed optimism Friday about the possibility of reaching agreement on a plan to fund higher education.
“Priority No. 1 is restoring higher education, and I think we’re really close,” Wirth said.
In a written statement, the Martinez administration described Friday’s meeting as productive.
“The governor is confident that there will ultimately be agreement on funding measures, including funding for higher education,” her spokesman, Michael Lonergan, said.
The real question may be how to pay for it.
Martinez vetoed a $350 million package of tax and fee increases earlier this year. She also removed funding in the budget for higher education and the Legislature itself, moves she described as only temporary until a spending plan can be crafted without tax increases.
Martinez has suggested a willingness to accept some new revenue if it’s linked to a broader overhaul of the state tax system.
Democrats and some Republicans in the Legislature, meanwhile, have expressed serious reservations about reshaping the tax code in a special session, without further study of how the change might affect revenue.
Neither Martinez nor Wirth suggested they’re close to agreement on that topic.
“The governor reiterated that she will not support standalone tax increases, but is hopeful that we will be able to find a bipartisan path forward on tax reform,” Lonergan said.
Wirth said legislators have not yet seen a copy of the tax-code legislation backed by Martinez, adding to their concern that it should be studied more thoroughly before there’s final action.
But he said there’s bipartisan support for the concept in general and the governor’s support is helpful.
“The question becomes: Is it responsible and prudent to pass a bill in two days that we haven’t seen yet?” Wirth said in an interview.
Another challenge for the governor and lawmakers: They don’t agree on how much money they need to balance the budget.
A revenue estimate developed in December would put the figure at about $150 million, based on an overall operating budget of $6.1 billion.
But staff economists working for the Legislative Finance Committee say the potential deficit may be just $70 million, or even less, because the economy has improved since then.
Oil and gas prices, which fluctuate, are a critical piece of state revenue.
In any case, to help bridge the gap, Democrats in the Legislature have suggested the state impose a gross receipts tax on retail sales made online – through Amazon.com, for example, which is already paying the tax voluntarily – and by imposing some new tax liability on nonprofit hospitals. The idea would be to treat nonprofit hospitals more like their for-profit counterparts.
The hospital and internet tax changes could raise about $111 million in revenue each year, supporters say.
And Democrats have pitched the ideas to Martinez as a way to close loopholes in the tax code – in other words, they don’t have to be considered tax increases.
House Speaker Brian Egolf, D-Santa Fe, said Friday’s meeting with the governor included a “good and frank conversation.”
“We made it clear that we have to find recurring revenues to pay for the restoration of funding to higher education,” Egolf said. “We also committed to work in the coming months with both parties on bipartisan tax reform that will work for everyday New Mexicans.”
The Martinez administration has suggested the internet and hospital tax proposals might be acceptable, if they’re part of a broader overhaul that simplifies New Mexico’s tax system, levels the playing field for businesses and makes the state more attractive to new industries.
Martinez has flatly opposed other tax increases passed by the Legislature, such as increased gasoline taxes and fees for purchasing vehicles.
Martinez has described tax overhaul as a key to the budget impasse. Removing the series of credits and deductions that riddle the system of gross receipts taxes, she said, would allow the state to broaden its tax base and lower the overall tax rate.
The changes could be phased in over time, she argues, allowing for a bump in revenue to help next year’s budget while remaining “revenue neutral” in the long run.