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Lawmakers race against clock to reach budget compromise

Copyright © 2017 Albuquerque Journal

SANTA FE – With just 2½ days left in the session, Gov. Susana Martinez and lawmakers are still trying to craft a compromise that balances New Mexico’s budget amid a fiscal crisis.

Critical points of tension center on whether to raise taxes; the possibility of re-imposing a tax on food purchases; and an ambitious, complex plan to remove more than 100 deductions and credits in the tax code.

There’s also debate over how much money should be kept in reserve to protect New Mexico’s credit rating.

The 60-day session ends at noon Saturday.

“We still have time,” said Sen. John Arthur Smith, a Deming Democrat and chairman of the Senate Finance Committee.

But the tension is obvious. Martinez this week accused the Senate of trying to “jam through massive stand-alone tax increases on our families.”

Democrats in the House and Senate, in turn, say new revenue is essential to avoid damaging cuts to public schools and other services.

The debate comes after New Mexico endured a credit downgrade and tapped into unspent cash balances to help cover the state’s bills through June 30. The state unemployment rate, meanwhile, is the highest in the nation.

“I think New Mexico is in trouble,” Sen. George Muñoz, D-Gallup, said in an interview. “We need a broader (tax) base. New Mexico had better quit trying to ride just one source of income – oil and gas revenues.”

Democrats and Republicans alike seem to agree on that. The House has already passed a bill that would 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.

The proposal – co-sponsored by Rep. Jason Harper, R-Rio Rancho, and two Democratic senators, including John Arthur Smith – would leave in place the tax exemption on food.

He and the other sponsors originally proposed re-imposing the food tax as part of the bill – an effort to create the broadest tax base possible, allowing for a lower tax rate overall. The goal is to keep the bill “revenue-neutral,” meaning the tax rate would be adjusted to ensure the state gets roughly the same revenue it gets now, not more.

But the bill is also in play as part of budget talks.

The bill could actually boost revenue in the coming fiscal year, lawmakers say, depending on the timing of when the exemptions are phased out and when the rate is actually lowered.

But state analysts have not provided firm estimates of how much the bill would raise under those scenarios – either with or without the food tax. They said the latest version of the legislation, without the food tax, could result in shortfalls or windfalls in tens – or even hundreds – of millions of dollars, depending on estimates of the tax base.

That uncertainty is a problem as legislators try to “reset” the tax rate and streamline the tax code, lawmakers say. A four-hour hearing Wednesday afternoon – held jointly by two Senate committees – didn’t result in action on the bill.

“It could have serious ramifications,” said Clemente Sanchez, a Grants Democrat and chairman of the Senate Corporations and Transportation Committee. “I think we all agree we need serious tax reform, but we have to be careful about how we go about doing it.”

During Wednesday’s hearing, representatives of public schools, hospitals and a series of other interests spoke against some of the ideas contained in the legislation, House Bill 412.

A health care lobbyist described it as a “job-killing” bill for hospitals because of tax exemptions that would be removed. A school official said the bill would make education more expensive – a problem given that the public has to pay to operate school districts – because schools and other government agencies would have to start paying taxes on the purchase of supplies and other basics.

The Greater Albuquerque Chamber of Commerce and other supporters, meanwhile, said the bill was a smart way to simplify the tax code and make it easier for everyone to navigate, improving the economic environment. Each exemption that’s removed would allow the overall tax rate to be lowered, supporters said.

As for the basic budget and tax bills, House Speaker Brian Egolf, D-Santa Fe, said talks are underway with the Martinez administration about a compromise.

“She made it very clear that there are things she wants,” Egolf said, “and there are some common elements that remain absolutely viable.”

The Senate has already approved a $6.1 billion spending plan and a $350 million package of tax increases. It drew broad support from Republicans and Democrats in that chamber, but Martinez has vowed repeatedly to veto tax increases.

The Governor’s Office didn’t respond to a Journal request for comment.

House Minority Leader Nate Gentry, R-Albuquerque, said he is hopeful the final budget package “will include comprehensive tax reform.”

“Although we are in the waning hours of the session, there is still time to come up with a good plan that will fund essential services and position the state for long-term economic growth,” Gentry said.

Egolf said he has been holding off on House consideration of the Senate-approved budget and tax package while talks with the governor continue. He might bring them to a vote as early as today.

“I’m still cautiously optimistic that we’re going to have a budget and a revenue package” agreed upon by the end of the session, he said in an interview.