SANTA FE – The debate over how to shore up New Mexico’s dwindling unemployment compensation fund has become a political tug of war with a fraying rope.
Four bills addressing the fund’s long-term solvency had been introduced in the state’s special legislative session through Wednesday. The state Supreme Court is waiting in the wings if the Legislature and Gov. Susana Martinez fail to agree on a legislative plan for keeping the fund afloat.
None of the four “fix” bills, however, had been voted on by Wednesday, and a compromise still looked elusive.
At issue is whether the contribution rates – or taxes – businesses pay into the fund on behalf of each employee should be increased to bolster the fund or whether state taxpayer revenue should be used to accomplish the task.
After vetoing part of a bill that would have increased the taxes businesses pay into the fund by $128 million in the coming year, Martinez rolled out her own plan this month to keep the fund solvent and fundamentally change the way it is managed.
But top-ranking Democratic lawmakers have balked at Martinez’s proposal to use $130 million from the state’s cash reserve account as a buffer, arguing the fund should be self-sufficient. Public employee unions have also urged lawmakers to oppose the governor’s plan.
The governor is barred from spending money from the state’s general fund or reserves without the Legislature’s approval, except in limited cases involving natural disasters.
In a tacit acknowledgment Martinez’s proposal had become a tough sell, Senate Republicans introduced a new proposal this week, also backed by the first-term governor, that would allow for up to $70 million to be lent from the state’s main operating account to the unemployment fund over the next two years. That money would have to be paid back in five yearly installments.
“We want to keep (the current business tax rates in place), but the fund is a little weak to do that,” said Sen. Steven Neville, R-Aztec, the bill’s sponsor.
But Neville said borrowing money from the state is preferable to raising taxes on business while the economy is struggling.
“There’s no reason to do that – that’s excessive taxing,” he said. “We’re trying to keep the economy going.”
The balance of the fund, which pays out jobless benefits, has dipped from more than $500 million three years ago to less than $140 million at the start of this month. Part of that was due to higher benefit packages for jobless workers put in place when the fund was brimming. Some benefits were scaled back earlier this year.
If no additional changes are made, the fund is projected to run dry in March 2013. New Mexico unemployment declined to 6.6 percent for August, but experts say that has only slowed down the insolvency threat rather than eliminating it.
Democrats said Wednesday that they don’t like the new Martinez-supported proposal much more than governor’s original plan.
“My worry is that we make a bad business decision by tapping into the general fund when we don’t know if the money is going to be there or not,” said Sen. John Sapien, D-Corrales.
The Democratic-controlled Legislature could force Martinez into a difficult position by once again sending her legislation that increases the tax rate on businesses. By vetoing the bill, she might also be risking even higher taxes on business to support the unemployment fund.
Senate Finance Committee Chairman John Arthur Smith, a Deming Democrat, has introduced a bill that would increase business tax rates next year, but by a smaller amount than the rate hike sent to Martinez’s desk earlier this year. His bill would boost taxes on businesses by an estimated $15 million next year.
If Martinez were to veto Smith’s bill or similar legislation, the Supreme Court could resume deliberations on a court challenge brought by six Democratic lawmakers who argued Martinez didn’t have the authority to strike out portions of the unemployment compensation fund fix bill approved in March.
The court opted in July not to rule on the suit, saying it would wait to see what happened during the special session.
“If the governor doesn’t accept what the Legislature does again, the Supreme Court gets the opportunity to make a ruling,” Sapien said Wednesday.
Such a scenario troubles Neville and other Republicans, who would prefer to keep the court out of the matter.
“If the court upholds the veto and we don’t pass anything, that’s doomsday,” said Neville, who pointed out that in such a case the tax rate on businesses would likely jump exponentially next year due to economic conditions.
Conversely, if the court were to reject the veto, the bill featuring higher business tax rates that Martinez line-item vetoed earlier this year – sponsored by Rep. Mimi Stewart, D-Albuquerque – would likely take effect.
While the debate simmers, the Greater Albuquerque Chamber of Commerce has launched a petition campaign to support legislation that doesn’t increase the business tax rate.
Such legislation, as proposed during the special session, would do more than just use state money to bolster the unemployment fund.
Neville’s bill, Senate Bill 37, would also reactivate an unemployment fund advisory council.
Language enabling the council currently exists in state laws, but such a body hasn’t been in place since at least the early 1980s, according to the Martinez administration.
“The governor believes this legislation reflects an important compromise that will prevent higher taxes from being imposed on New Mexico businesses and take politics out of the long-term management of the unemployment fund,” Martinez spokesman Scott Darnell said Wednesday.
If the council were to be reactivated, its members would make management decisions related to the unemployment fund instead of leaving such matters up to the Legislature.
A floor and ceiling for the fund – or maximum and minimum dollar amount – would also be implemented by the council.
— This article appeared on page A1 of the Albuquerque Journal