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Democrats’ budget plan includes tax proposals

SANTA FE – Facing a new budget crunch after several rounds of spending cuts, top-ranking House Democrats said Thursday that they will forge ahead with a budget-balancing plan that hinges on increased taxes on vehicle sales, health care providers, online retailers and commercial trucking.

If enacted, the package could generate roughly $200 million in revenue in the coming year – enough, majority Democrats say, to bolster state reserves and provide a modest funding boost to public schools and the state’s court system.

However, several of the tax provisions could be rejected by Gov. Susana Martinez, who has vowed to veto any tax increases approved by the Legislature.

But a spokesman for the two-term Republican governor described the tax proposal as “the typical Santa Fe mentality,” while suggesting lawmakers look at other funding sources.

“The governor is open to true tax reform, but she will not let lawmakers bail out Santa Fe on the backs of our families,” Martinez spokesman Michael Lonergan said.

The Governor’s Office has suggested it would be open to closing certain tax “loopholes,” and at least two of the proposals in the Democratic-backed tax package – making online retailers collect tax and removing tax deductions for health care providers – could meet that definition.

Debate over changes to the state’s tax code will play a prominent role in the second half of a 60-day legislative session that hit its halfway mark Thursday.

A House budget panel is expected to roll out its spending plan for the coming fiscal year next, and a House tax committee will begin moving on the tax package Monday, Egolf said.

If approved by the full House, the measures would advance to the Senate, which is expected to put together its own tax package.

Revenue flat

The tax increase plan was unveiled Thursday, hours after leading lawmakers were told the state’s revenue outlook for the coming fiscal year had been left unchanged after a review by executive and legislative branch economists.

Even after steep budget cuts last fall, the state is on track to take in roughly $123 million less in revenue in the coming year – slightly more than $5.9 billion in total – than current spending levels.

In addition, the state’s reserves have been largely depleted and are projected to be just 1.6 percent of state spending – far below recommended levels – when the new budget year begins on July 1.

But after two consecutive years of lower-than-expected revenue levels, some lawmakers heralded the news of flat revenue projections as a positive.

“Maybe we’ve leveled out, and that’s encouraging,” Senate Finance Committee Chairman John Arthur Smith, D-Deming, said during a Thursday committee hearing.

In a memo sent to the heads of the House and Senate budget panels, economists said the outlook for oil prices had improved since December, but the outlook for job growth and personal income growth had worsened.

‘New’ money

While some recent polls have found a majority of New Mexico voters favor a mix of tax hikes and spending cuts to only spending cuts when it comes to balancing the state’s budget, there’s likely to be significant pushback to the proposed tax hikes.

Many GOP lawmakers have expressed opposition to stand-alone tax increases, though three gas tax hike measures did pass a Senate committee earlier this week with bipartisan backing.

Meanwhile, a report released this week by the Rio Grande Foundation, a nonpartisan think tank that favors open markets, found that New Mexico’s state spending – as a percentage of its gross domestic product – is still higher than that of all of its neighboring states and is fourth-highest in the nation.

However, House Appropriations and Finance Committee Chairwoman Patricia Lundstrom, D-Gallup, said additional spending cuts could have serious repercussions, including jeopardizing the accreditation status of New Mexico universities.

Although $123 million would be needed to maintain current spending levels, both Lundstrom and Senate Finance Committee Chairman Smith have suggested lawmakers may have to come up with as much as $250 million in “new” money for the coming year to bolster reserves and keep state programs running.

That would have to come from tax hikes, spending cuts, one-time budget fixes, or a mix of the three approaches.

New Mexico’s budget woes are largely caused by plummeting oil and gas prices, which have had a ripple effect on the collection of other taxes.

The state’s top bond rating has already been downgraded, and Martinez approved a $190 million solvency package last month that reduces funding for most school districts statewide and takes money from various government accounts.