SANTA FE — On her final day to sign bills passed during this year’s legislative session, Gov. Michelle Lujan Grisham used her veto pen Friday to gut a massive tax package she’d described as bloated and fiscally unstable.
Specifically, the Democratic governor struck from the bill a phased-in reduction of the tax New Mexico consumers pay on most goods and services, a 20% alcohol tax increase, an electric vehicle tax credit and changes to the state’s personal income tax system aimed at benefiting low-income residents.
She left intact a $500 tax rebate — married couples filing jointly will get a $1,000 check — and an expanded child tax credit of up to $600 per child, along with changes to the state’s film incentive program, but stripped most of the other 20 or so provisions from the tax bill.
In an executive message to lawmakers, Lujan Grisham said the bill contained many “laudable tax reform measures,” but said she had grave concerns about its future sustainability.
“Given the unpredictable nature of the economy and our state’s reliance on oil and gas revenues, I am not confident this package is fiscally responsible,” she said in her message.
She also said the provisions left in place would benefit working families and the state’s economy, describing them as “necessary and beneficial.”
The sweeping vetoes irked some lawmakers and advocates who had pushed for the tax changes amid an unprecedented state revenue windfall.
The Sierra Club’s Rio Grande Chapter specifically criticized the governor’s veto of tax credits for electric vehicles, geothermal development and energy storage, saying the proposals could have helped the state respond to climate change.
“Vetoing the only progress we made in this session is turning us around and moving us in the wrong direction,” the Sierra Club chapter said in a statement.
Senate Majority Leader Peter Wirth, D-Santa Fe, who helped craft the tax package, called the vetoes disappointing, but said lawmakers would continue working to improve the state’s tax code.
“There were a lot of things in there that I believe are important to the state … and it’s frustrating when those get taken away,” Wirth told reporters Friday.
But he suggested the Senate would not pursue a veto override on the tax package, which would require a two-thirds majority vote.
The Democratic-controlled Legislature has not tried to override any of Lujan Grisham’s vetoes since she took office in 2019.
Rep. Derrick Lente, D-Sandia Pueblo, the chairman of the House Taxation and Revenue Committee, said this year’s tax package was carefully crafted.
“It is disappointing that we will not be able to reduce the tax burden on local businesses, educators, veterans and everyday New Mexicans, or help our state improve access to rural health care and reach our climate goals,” Lente said in a statement.
Concern over cost
The governor herself had previously advocated for some of the vetoed tax provisions, including the reduction in the gross receipts tax rate that would have gradually dropped the state’s base tax rate from 4.875% to 4.375% over a four-year period.
But she expressed concern in the run-up to the bill-signing deadline that the package’s recurring annual cost of $1.1 billion by 2027 — when it would have been fully implemented — could lead to future spending cuts.
During a news conference Friday, Lujan Grisham said she would prefer more gradual changes to the tax code.
“I just want us to be more pragmatic,” she said. “I didn’t think it was prudent to do it all at once.”
The governor also said the “numbers weren’t quite right” in the proposed alcohol tax increase that was pushed by backers as a way to decrease consumption in a state with the nation’s highest rate of alcohol-related fatalities.
By trimming most of the tax changes from the bill, the recurring cost will drop to $150 million as of the 2024 budget year, according to the state Taxation and Revenue Department. It will then gradually increase to $246 million by 2027, primarily due to the changes to the film incentive program.
Those figures do not include the tax rebates, which will be sent out starting in the next several weeks. The rebates will cost the state about $670 million in one-time funding and will be available to all taxpayers who filed 2021 tax returns.
New Mexico adults who do not qualify for the tax rebates, either because they did not file tax returns or for another reason, will be able to apply for similarly sized financial relief payments under a separate $15 million appropriation.
$9.6 billion budget
The governor also signed off Friday on a $9.6 billion budget plan for the coming year that will boost state spending to record-high levels for the third consecutive year amid a revenue windfall.
Among other provisions, the spending bill includes $100 million to bolster a law enforcement officer recruitment fund, another $100 million to set up two new funds for conservation programs and about $90 million to increase reimbursement rates for Medicaid providers.
It also provides funding to give 6% pay raises to state employees and teachers, starting in July.
But she vetoed about $21 million from the spending plan before signing it, while also striking some budget language that she said intruded into the executive branch’s authority.
The New Mexico revenue bonanza that allowed lawmakers to increase state spending and approve the tax package is primarily fueled by an uptick in consumer spending and surging oil production in the Permian Basin that recently made New Mexico the nation’s second-highest oil producer — behind only Texas.
Meanwhile, the governor also signed Friday a package of bills intended to expand access to health care in a state that’s long struggled with a provider shortage.
The measures include emergency legislation to revise New Mexico’s medical malpractice law to ensure independent outpatient clinics can obtain the insurance they need to keep operating next year. Also approved were bills intended to help rural hospitals and address high prescription drug costs.
During a news conference attended by doctors, hospital leaders and legislators, the governor thanked top-ranking Republican and Democratic lawmakers for overseeing negotiations that produced the medical malpractice compromise.
“It’s a deal that’s good for New Mexico,” Lujan Grisham said.
Senate Minority Leader Greg Baca, R-Belen, said the malpractice legislation is “proof positive that we can get things done” by working together.
Journal Capitol Bureau reporter Dan McKay contributed to this report.