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Legislators, governor still disagree on tax proposals

SANTA FE – One lawmaker compared it to watching the same movie twice.

Just as they did in March, state legislators on Thursday sent Gov. Susana Martinez a package of budget and tax proposals aimed at ensuring New Mexico has enough money to pay its bills over the next year and start rebuilding its reserves.

Gov. Susana Martinez

Gov. Susana Martinez

And as soon as today, the Republican governor could veto some of those ideas, including tax hikes on gasoline and vehicles and imposition of a tax on internet sales. Martinez vetoed similar proposals earlier this year.

“Let me be clear: I will veto all tax increases that hit my desk,” Martinez said after lawmakers recessed Thursday. “The legislative leadership knew that from the beginning and chose to pass these tax hikes regardless.”

But some progress was evident, too, in this week’s special session.

The main budget proposal – which would restore roughly $744 million in funding for New Mexico colleges and universities – picked up bipartisan support as it won approval in the House and Senate. It also includes more money for student financial aid and other changes requested by the governor.

Martinez, in a substantial change in tone, even said she was pleased with some of the Legislature’s work this week.

And top-ranking Democrats also said they believe they’ve addressed the state’s budget crunch – at least for now.

“It’s time for this crisis to be over, and we hope we’ve taken that step,” said Senate Majority Leader Peter Wirth, D-Santa Fe.

A second financial proposal – a complex bond transaction that uses “one-time” money to help shore up the budget – also passed, with broad support. It’s something the Martinez administration has pushed for, and she praised the Legislature for approving it.

If approved, those two measures alone should be enough to balance spending and revenue in the fiscal year that begins July 1, and close the books on the current budget year, lawmakers said.

Tax dispute

Beyond the basic budget bill and bond transaction, however, it isn’t clear how much the Legislature – where Democrats hold majorities in both chambers – and Martinez will agree.

Despite the governor’s opposition, lawmakers sent the governor a package of tax and fee increases – contained in two separate bills – that could raise another $190 million a year or so. The extra revenue is necessary, Democrats said, to start rebuilding New Mexico’s reserves and avoid damage to the state’s credit rating.

However, Martinez said she preferred raising money by closing tax loopholes as a part of a broad overhaul of the state tax code, a proposal that was blocked in a House committee.

An overhaul of the state’s complex system of gross receipts taxes is still possible, though not immediately. The budget proposal passed by lawmakers includes $400,000 for a tax study, and some legislators have broached the idea of considering a broad revision of the tax code later this year or in next year’s regular session.

The governor has until Monday afternoon to act on the four bills approved by the Legislature.

That’s because the House and Senate both recessed Thursday with plans to come back Tuesday, when they could try to override any gubernatorial vetoes, or just adjourn.

“We’re recessing so we can get action from the governor quickly,” said House Speaker Brian Egolf, D-Santa Fe.

Budget troubles

New Mexico has faced intense budget pressure linked to a downturn in oil and gas prices – a critical source of state revenue. The state has also struggled with the nation’s worst unemployment rate.

The Legislature earlier this year passed a $6.1 billion budget for the coming year and a $350 million package of tax and fee increases to help pay for it.

The governor in April vetoed the tax package and removed funding in the budget for higher education and the Legislature itself – a temporary move, she said, until lawmakers could craft a new financial package without tax increases.

Martinez suggested Thursday that the dispute is moving closer to resolution. The new budget proposal to restore funding for higher education and legislative agencies is much more to her liking, as it includes some extra money for the University of New Mexico Cancer Center and financial aid, she said.

“Overall, I’m pleased that we were able to come to an agreement on the budget,” she said in a statement.

Egolf said the Democratic-controlled Legislature tried to compromise on some of the governor’s requests, including more funding for student financial aid and the UNM Cancer Center.

However, he expressed concern about the possibility of a second downgrade to the state’s credit rating if Martinez follows through on her vow to veto the revenue bills.

House Minority Leader Nate Gentry

House Minority Leader Nate Gentry

“We’ll keep trying to give the people of New Mexico reasonable, responsible tax reform, and we’ll keep waiting on the governor to sign them,” Egolf told reporters.

House Minority Leader Nate Gentry, R-Albuquerque, said he was pleased with the session’s outcome, though he lamented the demise of a proposal to overhaul the state’s gross receipts tax system.

“We felt we held the majority’s feet to the fire and got a much better outcome than we did in the regular session,” he said.

Senate Majority Whip Michael Padilla,

Senate Majority Whip Michael Padilla

Senate Majority Whip Michael Padilla, D-Albuquerque, said the Legislature gave the governor enough options to balance the budget and start rebuilding reserves.

The tax proposals are smaller than what was proposed earlier in the year, though Democrats acknowledged the governor may veto the bills, either fully or partly.

“If you feel like you’re watching a movie for the second time,” Padilla said, “you’d be correct.”