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Changes weighed in tax rules for cities, counties

SANTA FE – One year after the New Mexico Legislature passed a sweeping tax package, some lawmakers are proposing changes to one of the package’s key provisions – a phaseout of the “hold-harmless” payments made by the state to cities and counties.

At least three bills were introduced during the first week of the 30-day legislative session that would make changes to the law, and more could be filed in the coming weeks.

The sponsor of one of those bills, Rep. Jason Harper, R-Rio Rancho, said last year’s legislation allows cities and counties to “double-dip” by raising local tax rates while still receiving hold-harmless subsidies from the state.

“I’m sympathetic to the budget woes of cities and counties, but the legislation was intended to address future budget problems,” Harper said in a recent interview.

Among other changes, his legislation, House Bill 132, would mandate that any city or county hold-harmless tax hike be staggered. For instance, cities could impose three separate one-eighth percent tax increases – in 2015, 2018 and 2020 – but could not immediately raise their local gross receipts tax rate by three-eighths percent.

The state began making hold-harmless payments to cities and counties after the Legislature removed the sales tax on grocery items and medical services in 2004. The payments were intended to keep cities and counties from taking a drastic revenue hit.

However, the subsidy was increasingly expensive for the state – distributions totaled nearly $120 million in 2012 – and became a target for budget-minded lawmakers.

Under the terms of the 2013 tax package, the hold-harmless distributions will be phased out over 15 years, starting in 2015. Local governments can raise their local option taxes to offset the lost money but cannot reimpose a food tax.

Several local governments – Las Cruces, Corrales and Otero County – have enacted tax hikes in response to the legislation, though Las Cruces’ has been delayed due to legal concerns.

Meanwhile, Senate Finance Committee Chairman John Arthur Smith, D-Deming, said Friday that he’s not willing to repeal last year’s law but will consider adjustments to it.

“My intent is to corral (this year’s tax bills) in Senate Finance to see if we can get a consensus,” he told the Journal.

New Mexico Municipal League Executive Director Bill Fulginiti, who claimed last year that most municipal leaders would like to be able to reimpose a tax on food, said Friday that he still has problems with how local governments have been treated by the state.

However, he said his organization, which lobbies for New Mexico cities, is largely on board with Harper’s proposed legislation.

“I’m kind of optimistic something good will happen,” Fulginiti said. “If you’re going to have it, let’s fix it.”

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