GRT defies expectations during shutdown - Albuquerque Journal

GRT defies expectations during shutdown

Despite the pandemic, the city of Albuquerque and other local governments around New Mexico have reported a year-to-year increase in gross receipts taxes tied to the construction industry. Above is work on the Homewood Suites by Hilton hotel at Central and Broadway. (Adolphe Pierre-Louis/Albuquerque Journal)

Copyright © 2020 Albuquerque Journal

Indoor shopping malls and hair salons around New Mexico were closed for all of May, and restaurants statewide were barred from providing inside, sit-down service.

But gross receipts tax – a tax levied on the sale of most goods and services – did not plummet amid the sweeping, COVID-19-related economic shutdown.

In fact, it barely budged.

Statewide, newly released figures show that the May GRT distributions that flowed into cities, counties and other governmental coffers was just 1.2% less than May of 2019.

The impact varied by individual community, with those heavily reliant on tourism or oil and gas hurt more than others, according to Lucinda Sydow, chief economist with the New Mexico Taxation and Revenue Department, but the overall decline was less than many anticipated.

“I would’ve expected it to be a much larger decline,” said Jim Peach, professor emeritus of economics at New Mexico State University.

But that does not mean everything is stable.

Economists say the state likely has not dodged the bullet so much as it has been outrunning it.

In Albuquerque, total 2020 fiscal year-to-date GRT revenue through May remains ahead of 2019 levels, though officials note that partly reflects an entirely new revenue source: $501,000 in monthly internet sales tax disbursements that began this year.

With the pandemic still raging, the public still encouraged to social distance and state mandates still restricting business activity, Albuquerque Chief Financial Officer Sanjay Bhakta said it is hard to know when the economy will return to normal. For fiscal year 2021, which began July 1 – the city expects to bring in $55 million-$107 million less in GRT than forecast before COVID-19.

“The decline (so far) seems to be overall less than we projected – that’s the main thing, and it’s good news,” Bhakta said. “However, what is worrisome is that even if the decline is less than expected, it feels like it’s going to last longer. It’s not that we will be all done by December.”

Experts say there are a few possible reasons the GRT – the lifeblood of many local government budgets and also a significant source of state government revenue – has not fallen off a cliff up to now.

However, none of them is likely to provide long-term help.

For example, in Albuquerque and elsewhere in the state, construction has been a small boon.

Albuquerque’s total May GRT was $35.6 million. That’s 7% less than 2019, or 8.3% without the new internet sales tax revenue.

The drop reflects major hits in some key industries, including accommodation and food services, which is down 34% compared with May 2019.

But construction in Albuquerque actually increased 3% year over year and was up 18% in April.

“We’re definitely seeing construction in several counties bolstering the GRT distribution. That was also a bright spot in terms of employment,” Sydow said, citing June employment numbers.

“Of course,” she added, “construction is seasonal; it’s helping now, but it won’t last forever.”

Local governments’ GRT revenue has also benefited from intense grocery shopping during the pandemic.

While consumers are not taxed on food at the register, they are taxed on nonfood items and on all delivered groceries. Because the viral pandemic has prompted many to stay home whenever possible, Peach said the delivered grocery tax could also have helped GRT revenue the past few months.

Even untaxed in-store grocery purchases had an impact. Cities and counties still get payments from the state that represent a portion of the revenue they would have received if the groceries had been taxed.

Those payments have skyrocketed, totaling $10.7 million statewide in May, compared with $4.2 million in May 2019.

When excluding those payments and considering only the total gross GRT distributed statewide, May 2020 actually fell about 2.8% from a year ago.

Peach said New Mexico’s high rate of public-sector employment is a potential factor. About 24% of all New Mexico employment was in government as of May, according to survey data from the U.S. Bureau of Labor Statistics.

While some large public entities, including the city of Santa Fe, have recently furloughed staff to cut costs, other major public employers, including New Mexico and Albuquerque, have avoided it.

Having so many people in government jobs “offers some stability to the state economy,” Peach said, though he cautioned that such stability is unlikely to extend long term.

The state last month significantly cut funding for public institutions and major employers such as NMSU and the University of New Mexico, which Peach says could lead to worker layoffs or furloughs.

Peach and others say another reason GRT has not plummeted is the recent federal boost to unemployment insurance benefits.

As part of the CARES Act, a coronavirus-related relief package passed in March, the federal government has been contributing an extra $600 per week to workers collecting unemployment benefits – a sum that pushed the benefit above regular working income for many New Mexicans.

“That has propped people up – it has propped up consumption and spending and has allowed people to pay their rent, and it’s significant particularly in New Mexico because the wages here aren’t as high as in some other places,” said city of Albuquerque economist Christine Boerner.

But that benefit ended Saturday.

Sydow said the federal Paycheck Protection Program likely also contributed to New Mexico GRT levels because it helped keep businesses open and workers paid.

“The concern is if the federal government doesn’t have something to transition to once those loans run out and the $600 (unemployment boost) … runs out, then we might see some of these hits we thought we would see (already),” she said.

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