SANTA FE – A 90-minute meeting between top legislative leaders and Gov. Susana Martinez produced “broad agreement” on some key budget questions, House Speaker Brian Egolf said Wednesday, fueling new optimism for a budget compromise in the session’s last 10 days.
But it’s clear there’s plenty of work to be done.
Martinez, a Republican, has repeatedly vowed to reject tax increases. Democrats, in turn, say new sources of revenue are needed to spare public schools and other services from deep cuts.
But legislation to overhaul New Mexico’s tax code has emerged as a potential point of compromise.
Rep. Jason Harper, R-Rio Rancho, has sponsored a bill – passed 63-0 by the House late Wednesday – to close a series of loopholes and deductions in the state’s system of gross receipts taxes, which are levied on the sale of most goods and services. It is co-signed by Democratic Sens. John Arthur Smith of Deming and Carlos Cisneros of Questa.
Removing exemptions in the code – Harper likens it to “Swiss cheese” – would help produce new revenue in the coming fiscal year, but without increasing the basic tax rate, a necessity to win the governor’s support.
Harper’s eventual goal, in fact, is to lower the tax rate and make it revenue-neutral. That’s possible only if the tax base is broadened by removing exemptions, such as a deduction enjoyed by nonprofit hospitals.
But Egolf said Wednesday’s compromise would leave in place the tax exemption for the purchase of food, which was enacted in 2004.
“There is broad agreement on a variety of issues,” Egolf, D-Santa Fe, said in an interview after meeting with the governor and others.
Harper is pushing for broader changes to the tax system, but he said he is willing to compromise at this point in the session.
“I’m not going to let perfect be the enemy of the very good,” he said. “The main focus of the bill is still intact.”
Egolf said the meeting with the governor – which involved about 20 legislators on both sides of the aisle – was helpful.
The Martinez administration described it as productive.
“The governor is hopeful that we’ll be able to work with legislators to put together a good budget deal for New Mexicans, but we still have significant work to do,” spokesman Michael Lonergan said in a written statement.
Smith, chairman of the influential Senate Finance Committee, offered a similar assessment.
“We’re quite a ways off,” he said.
The state House passed Harper’s bill reforming the tax system late Wednesday, and it now heads to the Senate.
The measure was amended to narrow its focus. In addition to doing away with the food tax reintroduction, another proposed change to House Bill 412 is eliminating a fix to “tax lightning,” which occurs when property taxes jump dramatically when a home is purchased.
Even so, Egolf said, the legislation could close more than 100 loopholes in the code, even without reimposing the gross receipts tax on food.
Harper added that while it’s designed to be revenue-neutral to the state in the long run, the bill could generate additional tax dollars in the coming budget year by having certain provisions take effect earlier than originally planned.
Those provisions include a requirement that online out-of-state retailers collect gross receipts tax from New Mexico consumers.