Tax cut pitch leads to budget warning - Albuquerque Journal

Tax cut pitch leads to budget warning

Former Santa Fe Police Chief Aric Wheeler is shown speaking in a campaign ad released this week by Gov. Michelle Lujan Grisham’s campaign that targets Republican Mark Ronchetti’s plans to cut taxes and provide annual rebates. The two candidates have clashed about the impact of such proposals during the run-up to the Nov. 8 general election. (Used with permission of Michelle Lujan Grisham campaign)

Copyright © 2022 Albuquerque Journal

SANTA FE – New Mexico might be awash in state revenue these days, but a fear of future budget cuts has emerged in the final stretch of this year’s race for governor.

After Republican Mark Ronchetti proposed income tax cuts and annual rebate checks for state residents, Democratic incumbent Michelle Lujan Grisham said in a recent debate those policies could mean budget cuts for New Mexico public schools.

“He’s going to double down and redeploy the same budget cuts to education,” Lujan Grisham said, who also claimed her GOP opponent’s plan could lead to fewer law enforcement officers and doctors in New Mexico.

Her campaign has doubled down on the criticism with a recent TV ad that asserts Ronchetti’s plan would lead to “billions of dollars” of spending cuts.

But Ronchetti has insisted his plan will not lead to spending reductions, though his campaign estimated it would cost up to $2 billion to implement. He also said during the KOAT-TV debate last week that much of the increased spending on public schools during Lujan Grisham’s first term as governor has gone toward education administration – not classrooms.

“There will be no education cuts, and any assertion that there will be is a lie,” Ronchetti said.

In the short-term future, budget cuts of any kind appear unlikely as state revenue levels are projected to continue increasing for at least the next two years – hitting an estimated $9.2 billion in the coming budget year – due to an oil production boom in southeast New Mexico and increased wage growth.

However, New Mexico’s budgetary reliance on the oil and natural gas industries have led to big revenue swings over the past decade and economists say it’s difficult to know what revenue levels might be like four years from now.

Facing that uncertainty, Ronchetti would work with the Legislature to pass annual budgets that fund necessary programs while also emphasizing tax relief for families and small businesses, according to his campaign.

“He would negotiate an annual spending growth limit with the Legislature, and to raise spending by any higher percentage would require a supermajority of the Legislature,” said Ronchetti campaign spokesman Ryan Sabel. “Pretty reasonable, right?”

When asked whether that means Ronchetti would be willing to veto spending bills approved by the Legislature that he deems excessive, Sabel did not answer directly but said budget bills signed by Ronchetti would be responsible.

The Ronchetti campaign also did not say specifically what percentage increase in yearly spending would be acceptable.

Sen. George Muñoz, D-Gallup, the chairman of the Senate Finance Committee, said imposing spending limit caps would make it difficult for lawmakers to account for unique challenges, such as replacing phased-out federal Medicaid spending and inflation-related increases in meals for senior citizens, which are both expected to be cost drivers during the upcoming 60-day legislative session.

“It’s fine to have a level and stable spending increase, but negotiating a cap is unrealistic,” Muñoz told the Journal. “Realistically, that’s not the way government operates.”

Sen. Crystal Diamond, an Elephant Butte Republican and member of the Senate Finance Committee, said the tax cuts proposed by Ronchetti deserve consideration. New Mexico, she said, can afford reduced taxes “without jeopardizing funding to education and other programs.”

She added: “In the face of high gas prices, skyrocketing inflation, and a potential recession, providing meaningful tax relief is more important than ever.”

State spending up

State spending has increased rapidly since Lujan Grisham took office in 2019, underpinned by revenue levels that have surged since plummeting during the initial stages of the COVID-19 pandemic.

Since 2019, recurring state spending has gone from $6.3 billion to $8.5 billion – an increase of about 35% in four years. There’s also been hefty one-time spending on roads, water projects and other types of infrastructure.

Public school spending currently makes up about 45% of the state budget, and has increased from $3.25 billion to $3.8 billion during Lujan Grisham’s tenure.

In contrast, total state spending went from $5.2 billion to $6.3 billion – or slightly more than 20% – during the eight years that Republican Susana Martinez, Lujan Grisham’s predecessor, was governor.

Martinez largely avoided spending cuts to education during her tenure, but pushed for money to be taken from school districts’ reserve funds during a revenue downturn that prompted fiscal belt-tightening.

In addition, she was governor when a state judge ruled in 2018 that New Mexico was failing to meet its constitutional requirement to provide an adequate education to all students, especially Native Americans and English-language learners.

Lujan Grisham has repeatedly referred to Martinez in recent debates as Ronchetti’s “mentor,” while also criticizing Ronchetti’s lack of government experience.

In response, Ronchetti has sought to portray Lujan Grisham as a political insider who is largely out of tune with New Mexicans’ daily challenges.

He has called for cutting state personal income tax, especially for families making less than $80,000 per year, and proposed annual rebate checks for New Mexico residents, with the size of the rebates being determined by oil and natural gas revenue levels.

“We are serious about getting you to the end of the month – this governor is not,” Ronchetti said.

Tax package signed

The back-and-forth debate over tax cuts and spending increases comes after Lujan Grisham this year signed into law a broad tax package.

The package included rebate checks for taxpayers, exempting Social Security benefits from taxation for most New Mexico retirees and trimming the state’s gross receipts tax rate for the first time in 40 years.

In all, it’s projected to cost the state nearly $530 million for the budget year that began in July, though backers have argued that spending will help New Mexico families and businesses, while also boosting consumer activity.

When it comes to Ronchetti’s plan, however, some Democrats say the tax cuts would go too far.

James Jimenez, a former state budget official who is current executive director of the New Mexico Voices for Children Action Fund, a group that has opposed broad tax cuts, said spending cuts would be inevitable under Ronchetti’s plan.

“Slashing income and increasing spending, as all families know, inevitably leads to financial instability,” Jimenez said in a recent analysis.

He also said Ronchetti’s proposals would not allow for increased spending on New Mexico’s behavioral health system, affordable housing and child care assistance.

However, Ronchetti campaign spokesman Sabel said the GOP candidate’s budget plan would still allow for teacher pay raises.

He also said Lujan Grisham has not released an economic plan – the governor has called for additional financial relief measures but has said details would have to be worked out with lawmakers – and claimed she is afraid to talk about parts of her record.

“So instead, she resorts to election-year gimmicks and scare tactics – and a media that is all too willing to pretend that either are real,” said Sabel.

Expanded early voting begins Saturday for the general election, which is set for Nov. 8.

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