Copyright © 2017 Albuquerque Journal
Corporate income tax revenues have plunged in New Mexico over the past several years, falling beyond what was predicted when a tax cut package was passed in 2013.
The drop is expected to be nearly 65 percent, from the year the cuts began to the current fiscal year projection.
The reasons go beyond the tax package, pushed by Gov. Susana Martinez and approved by lawmakers, and have much to do with the plunge in the oil and gas industry, state finance officials say.
They defend the phased-in tax cuts and say the changes are helping to diversify a state economy too long dependent on government and oil and gas jobs.
“We saw what the oil and gas crash has done to our state,” Duffy Rodriguez, secretary of the Department of Finance and Administration, said Monday. “To put something in place to not have that happen in New Mexico again is extremely important.”
The 2013 tax package, a compromise passed by lawmakers in the final minutes of that year’s legislative session, called for the state’s top corporate income tax rate to drop from 7.6 percent to 5.9 percent over a five-year period. The package included several other provisions, such as expansion of the state’s film tax credit.
This year, corporate income tax collections are expected to account for 1.2 percent of the state’s general fund revenue and are considered more volatile than other taxes.
The package, which the governor at the time called the “New Mexico Jobs Package,” was aimed at making the state more competitive in attracting jobs and supporting existing ones.
Since then, the state’s unemployment rate has hit the bottom or near-bottom compared with all other states, and the number of jobs remains below the level it was before the start of the recession in late 2007.
But Clinton Turner, chief economist for the Department of Finance and Administration, pointed to job growth in New Mexico’s private sector. Private businesses were up 9,000 jobs, or 1.4 percent, compared with last year – the biggest gain since June 2015, according to the state Department of Workforce Solutions. April year-over-year figures showed overall job growth of 1.2 percent, the highest in almost two years, according to the department.
The Journal on Friday and Monday requested an interview with Martinez, but spokesman Michael Lonergan said Monday that she was unable to fit it into her schedule.
Jim Peach, New Mexico State University economist, said the tax package and increased funding for economic development programs “have not put New Mexico at the forefront among the states in employment growth. There is very little evidence that lowering tax rates promotes economic growth. You’re kind of seeing that here.”
Instead, Peach said, firms are looking for a “well-trained and highly educated workforce.”
“When you talk to industry people and read industry newsletters … tax rates are not the first thing that firms look for,” Peach said.
Matt Geisel, state economic development secretary, disagreed, saying the cuts and New Mexico’s other business incentives “are opening the doors for us.”
The state has suffered a series of blows, including the Great Recession, automatic federal budget cuts in 2013 and a devastating drop in oil and gas prices in 2014.
On top of that, Intel’s plant in Rio Rancho has shed more than 2,000 jobs over the past few years, he said. Intel was once the largest private industrial employer in the state.
The most recent figures show corporate income tax collections were down 63.6 percent year-to-date as of March, compared with the same period the year before. The drop for personal income tax collections was 4.9 percent.
“The reality is, if we didn’t do what we have done … we as a state would be in much worse shape,” Geisel said. “The diversification is taking foot, and when you factor in the impact of these headwinds … many of which are global in nature, we have made forward progress.”
Turner also pointed to a 6 percent boost in construction jobs over the past year and said the oil and gas industry has “finally hit the bottom.”
That industry is a big reason for the corporate revenue drop, and other “commodity-heavy” states have seen similar or even “more drastic” reductions, he said.
Some lawmakers, facing a huge budget deficit, proposed last October a two-year halt to the phase-in of the tax cut, but the Martinez administration opposed the move.
The Legislature last month wrapped up another special session to deal with the continuing budget crisis. The $6.1 billion spending plan that was approved is about $133 million more than expected revenues.
The governor vetoed a package of tax increase proposals that would have generated at least $215 million in new annual money, saying it would have hurt New Mexico families. A separate GOP-backed proposal to overhaul the gross receipts tax system stalled in the Democratic-controlled House.
The state now faces the possibility of a second downgrade in its credit rating, which would mean higher borrowing costs for state and local governments.