SANTA FE – A $6.1 billion spending plan and a $350 million-plus grab bag of tax increases to help pay for it are headed to the Senate floor, after being approved Friday by the Senate Finance Committee.
Both bills have already been approved by the House but were revised by the Senate committee over several days of behind-the-scenes negotiations before committee members voted unanimously to approve them in a debate that took less than 15 minutes.
Sen. Carlos Cisneros, D-Questa, the committee’s vice chairman, described the spending and tax bills as a “fair package,” saying the goal was to avoid additional cuts to public schools that could have led to furloughs and layoffs.
“That, to me, would be far greater of a pain than any tax increases that are in here,” Cisernos told the Journal after Friday’s vote.
However, Gov. Susana Martinez has already expressed opposition to at least some of the proposed tax measures – including an increase of 10 cents a gallon in the state’s gasoline tax rate and a two-year delay in a corporate income tax rate cut that’s being phased in over several years.
If Martinez were to veto the entire tax increase bill, the entire budget bill would likely also have to be vetoed. Like most states, New Mexico is required to end each fiscal year with a balanced budget, under the state Constitution.
The governor can use her line-item veto authority to ax certain provisions, but the question is whether enough revenue-generating pieces would be left in the bill to cover spending levels in the budget.
A Martinez statement indicated the governor was still cool on the tax hike package.
“As the governor has said repeatedly, she opposes raising taxes,” Martinez spokesman Michael Lonergan said. “She has presented various options to the Legislature that total up to $300 million in savings and is encouraged by recent conversations with lawmakers.”
One bill that’s been mentioned as part of a potential budget compromise, a House-approved bill aiming to overhaul the state’s gross receipts tax structure, was not acted on Friday.
However, House Bill 412, sponsored by Rep. Jason Harper, R-Rio Rancho, is still expected to be in the budget mix, either as another piece to the budget puzzle or a potential fallback option were the other tax bill to be vetoed.
The spending bill approved Friday by the Senate Finance Committee would not significantly change overall spending levels from the plan approved last month by the House.
It would still cut spending for New Mexico universities, but would increase funding for the cash-strapped judicial branch. And Medicaid spending would remain largely flat.
There are some significant alterations from the House plan, however, including adding roughly $15.9 million for teacher stipends, early reading intervention and other education initiatives backed by the Martinez administration.
To keep spending largely neutral, funding that flows directly to school districts through a state funding formula was then pared back, though it would still be up from current levels.
In all, the revised plan would only slightly increase state spending over this year’s levels, which were pared back during a special session last fall. Overall spending for public schools, which already makes up about 43 percent of the state budget, would increase by roughly $13.3 million – or 0.5 percent.
Education leaders say that would be welcome news after several rounds of K-12 spending reductions, but likely not enough to offset the cuts.
“The small overall increase is encouraging, but we’re discouraged that overall state education spending remains way too low to provide all the services students need,” said Charles Goodmacher, the government and media relations director for National Education Association-New Mexico, a teachers union.
In addition to gasoline and corporate income tax, other provisions of the tax bill include taxing online sales, increasing the permit fee for commercial trucks and raising the tax rate on new and used vehicle sales from 3 percent to 4 percent.
In all, the tax package would generate an estimated $363 million in the coming year, with some of those dollars being earmarked for cash reserves and road repairs statewide. The rest would flow into the state’s general fund.
Two consecutive years of lower-than-expected revenue collections, caused primarily by plummeting oil and natural gas prices, have led to New Mexico’s cash reserves being largely depleted and a downgrade of the state’s top bond rating.
While leaders in the Democratic-controlled Legislature opposed to additional cuts, Martinez, the state’s two-term Republican governor, has vowed to oppose any tax hike approved by lawmakers and has insisted other budget-balancing options are available.
Meanwhile, both the budget and tax bills, which are House Bill 2 and House Bill 202, respectively, could be voted on today on the Senate floor.
The chamber’s top Republican said Friday that voting on tax increase bills isn’t easy, but lawmakers are trying to keep the state’s best interests in mind.
“We’ve got to have enough money to operate,” said Senate Minority Leader Stuart Ingle, R-Portales.
The measure would:
• Increase the excise tax rate on sales of new and used vehicles to 4 percent from 3 percent.
• Raise the gasoline tax rate by 10 cents a gallon – cents to 27 cents from 17 – and the diesel tax rate by 5 cents a gallon.
• Require out-of-state online retailers to collect gross receipts tax from New Mexico consumers.
• Impose a two-year freeze on a corporate income tax rate cut that’s being gradually implemented.
• Raise the annual permit fee on commercial trucks from $5.50 to $55 per vehicle.