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Tax overhaul proposal a concern for NM cities

Copyright © 2019 Albuquerque Journal

SANTA FE – A sweeping tax overhaul proposal that has drawn opposition from health insurance companies and other business interest groups has another notable critic: the city of Albuquerque.

The multifaceted House Bill 6 would lower the state’s gross receipts tax rate, but increase the gasoline tax, eliminate many existing tax deductions, institute an internet sales tax and make several other changes. The cumulative effect would actually generate more money for local governments, according to a financial analysis by legislative staff.

But Albuquerque’s top finance official is raising concerns, saying there are too many unknowns and that cities “can’t afford to shoulder the burden of this tax experiment.”

Albuquerque Chief Financial Officer Sanjay Bhakta said the city would lose an estimated $115 million to $120 million in the first 10 years and he does not know how it might recoup those funds.

“What is certain is what will go away,” he said. “What is uncertain is what we will get.”

The bill would eliminate a major source of city revenue: payments it receives from the state to help offset losses sustained when the state stopped taxing food in 2004.

Albuquerque will get about $25 million this year in “hold-harmless” money. Although the state is gradually shrinking those payments as part of a phaseout, it was supposed to continue through fiscal year 2030.

The new bill would accelerate the process, stopping payments in 2022. That would mean a sudden hit equal to about 4 percent of the city’s budget, Bhakta said, adding that it’s roughly equivalent to the cost of hiring 200 police officers.

“I’m not saying it’s directly going toward that, but it’s a good example,” he said.

The House Taxation & Revenue Committee on Monday temporarily tabled the bill, with committee chairman and bill co-sponsor Rep. Jim Trujillo, D-Santa Fe, saying he wanted to wait until the Senate and Gov. Michelle Lujan Grisham had clearly outlined their own visions for tax overhaul.

But Trujillo, who introduced HB 6 with Rep. Susan Herrera, D-Embudo, and Albuquerque Democratic Reps. Sheryl Williams Stapleton, Antonio “Moe” Maestas and Javier Martínez, said he plans to circle back later.

He said he has heard the opposition and wants to continue honing the bill.

“I want to tell you that we know what the issues are. We can work with that, and so I think it would be the best thing to temporarily table it until such time as we start getting more information,” he said.

The legislative staff analysis estimates that the bill’s other provisions would more than fill the gap created by cutting the hold-harmless payments. The boost would come largely from the internet sales tax and adding local increments to the state compensating tax – a tax buyers pay on certain goods purchased out of state.

Bhakta said the combination would likely cover the difference, but disagrees with using internet sales tax as part of the equation. Cities should get that regardless, he said, and the Legislature should use other mechanisms to plug the hold-harmless hole.

“I believe we have the right to get that tax and it is not something the state is sort of giving to us,” he said.

Bhakta said he hasn’t seen enough evidence that the compensating tax changes will provide the boost outlined in the analysis – $94 million in 2022.

Bill Fulginiti of the New Mexico Municipal League said there are many questions about the compensating tax’s benefit.

It may be a boon in some communities, such as those bringing in heavy equipment for oil drilling or mining. But others may see little gain.

“It’s going to come in in different places – some of them are going to be doing really well, but we have 106 cities,” Fulginiti said.

Like Albuquerque, municipalities around the state are concerned that the bill would take away a reliable source of revenue – hold-harmless payments – without a reliable replacement, he said.

And local governments, he said, have had to constantly adjust since the 2004 food tax repeal. At the time, hold-harmless payments were expected to continue in perpetuity. But in 2013, lawmakers passed legislation to end them in 2030. Now, cities are facing a possible sunset eight years earlier than that date.

Bhakta said the bill would be more palatable if it guaranteed that the state would cover the difference if any new revenue generated – exclusive of internet sales tax – did not fully compensate for the loss of hold harmless. It would be a hold harmless for the hold harmless.

Otherwise, he said, it’s too unpredictable.

“It’s like we are shooting in the dark,” he said.

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