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State lawmaker’s bill aims at fixing ‘hold harmless’

FARMINGTON — In July, multi-million-dollar “hold harmless” payments from the state to San Juan County and Farmington will begin to be phased out, eventually costing the county more than $2 million and the city almost $6 million a year.

But state Sen. Steve Neville, R-San Juan County, has a bill he plans to carry in the 60-day legislative session that began Tuesday that he hopes will ease the burden on local governments’ budgets.

“It’s a simple concept,” he said.

Senate Bill 101 is one of many attempts anticipated this session to resolve the impacts of 2013 state legislation eliminating hold harmless payments that Neville said “wasn’t written quite properly.”

That 2013 legislation, which is now law, will begin a 15-year phase out of the multi-million-dollar payments the state makes to New Mexico counties and cities in July. Since 2005, the state had made these annual payments — approximately $2.6 million to the county and $5.8 million to the city — to make up for revenue lost by exempting food and medicine from gross receipts taxes. The payments have held counties and cites “harmless.”

In the first year, the state will cut approximately $157,000 from county and $388,000 from city payments, according to county and city documents. And each year, the reductions compound until the payments are eliminated.

The payments weren’t sustainable, Legislative Finance Committee Director David Abbey has said. In fiscal year 2013, the payments cost the state’s general fund approximately $140.5 million, according to legislative finance documents.

“We continued to share what we weren’t getting,” Abbey told The Daily Times in August.

Neville’s bill would allow counties and cities to implement taxes on businesses — in one-sixteenth of 1 percent increments — to compensate for the lost revenue from phasing out the “hold harmless payments.” Then, to avoid a statewide tax increase, it would reduce the state’s gross receipts taxes by a quarter of 1 percent. The idea is the local tax increases would be accompanied by a state tax reduction, he said, avoiding, overall, a tax raise.

He said the bill still needs work, however.

When asked whether the bill would negatively impact any of Gov. Susana Martinez’s initiatives — as it reduces state tax revenue — her spokesman, Mike Lonergan, said the governor’s staff members have not yet had an opportunity to review the legislation.

Efforts on Wednesday to reach New Mexico Taxation and Revenue Department spokesman S.U. Mahesh for comment on the legislation were unsuccessful.

“I don’t think any of us are sure exactly what’s going to come out of this session,” County Commission Chairman Keith Johns said.

Presently, Neville’s bill would be difficult to work with, he said. The 2013 legislation repealing the “hold harmless payments” allowed counties and cities to implement three tax increments of one-eight of 1 percent, and the county has implemented two of those. Neville said it’s going to be difficult, but he wants to find a way for his bill to also phase out those tax increments.

“Sen. Neville, he’s looking at the big picture,” Johns said, but the commission is considering just the county. Johns hopes he and his colleagues can create a better idea to bring to Neville.

In an email, City Manager Rob Mayes said Neville’s bill, while still under review, “seems promising as a means to bring badly needed relief from the legislation passed (in) 2013 …”

The city has not implemented any of the hold harmless tax increments, he said.

Other legislators also are working on bills to resolve the issues revolving around the hold harmless provisions, Johns said. But it’s a difficult issue to fix, he said, and right now, the county will have to wait and see what happens.

“The hold harmless thing, just, gosh darn it,” he said, “it’s hard.”

Dan Schwartz covers government for The Daily Times. He can be reached at 505-564-4606 and Follow him @dtdschwartz on Twitter.


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