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Governor faces ‘menu’ of options on budget

Copyright © 2017 Albuquerque Journal

SANTA FE – Top Democrats in the Legislature describe it as a menu.

They say they’ve sent Gov. Susana Martinez a series of options for balancing New Mexico’s budget – an à la carte selection of tax increases and other ideas for new revenue.

But with a Friday deadline approaching, it’s clear Martinez doesn’t find the choices particularly appetizing.

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She has promised repeatedly to veto tax increases, though she has left open the possibility of closing loopholes in the tax code.

Under the Legislature-approved budget package, in any case, she would have to accept roughly $164 million in new revenue to cover the proposed spending on basic operations for the coming year.

And the Legislature has approved roughly $350 million in new revenue options – at least $282 million of which would be available directly to help the state’s basic operating fund. Extra revenue above the $164 million would generally be used to help build state reserves.

Martinez has line-item veto authority that allows her to reject some or all of the new revenue options, and she can use her authority to veto parts of the spending plan, which would reduce the need for new revenue.

Senate Majority Leader Peter Wirth, D-Santa Fe, said he and other lawmakers knew the Republican governor wouldn’t accept all of the revenue ideas. But after failing to reach agreement with Martinez on a specific budget plan, lawmakers opted to send her options for balancing the budget through her line-item veto authority.

“We did our job,” Wirth said this week. “We’ve given her choices.”

Members of the Martinez administration, by contrast, say they had their own ideas for balancing the budget, but those options didn’t make the menu approved by lawmakers.

“That’s hardly a menu of options,” Martinez spokesman Michael Lonergan said in a written statement. “That’s like asking for a burger and fries, and all they offer is tofu and quinoa. The fact is, these are failed policies that would only make things worse.”

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Martinez says her administration offered $300 million in options that wouldn’t raise taxes. The governor, for example, proposed reducing employees’ take-home pay by asking them to contribute more to their pension plans, taking back some money from school districts, and cutting state payments to cities and counties that have raised taxes already as a way to cover revenues lost when the state stopped charging gross receipts taxes on food several years ago.

The Martinez administration also says the ideas backed by the Legislature aren’t as simple as they sound. One idea isn’t legal, the Governor’s Office says, and others won’t generate as much as savings as lawmakers claim.

Furthermore, her administration contends, some of the new money wouldn’t be available in time to help the state pay its bills.

Martinez and her staff are still reviewing the $6.1 billion budget adopted by lawmakers.

She has until Friday to sign legislation, or it’s automatically vetoed.

Closing loopholes

Martinez’s comments that she would consider closing tax loopholes led Democrats in the Legislature to believe that meant she might be willing to support some new revenue.

The budget package won bipartisan approval in the Senate, but passed along party lines in the House. Democrats control both chambers.

Martinez says lawmakers used tax increases to balance the budget, knowing she wouldn’t support them. She is willing to close tax loopholes – perhaps raising new revenue – but only if it’s part of a broader package of tax reforms, her administration says.

The governor has said she will call lawmakers into special session soon to address the budget. The fiscal year begins July 1.

Supporters of the budget package, meanwhile, describe some of the revenue-raising ideas as the closing of tax loopholes, not increases.

Wirth said the governor didn’t reject the ideas during private budget talks amid the legislative session, though no agreement was reached. Some of her ideas were, in fact, incorporated into the budget, he said.

Revenue options

Among the revenue options are:

⋄  Imposing the state’s gross receipts tax on sales over the internet through Amazon.com and similar companies. State analysts believe it could raise about $20 million, though estimates have ranged from $9 million to $38 million.

Amazon has already announced it will charge gross receipts tax on sales to New Mexicans, starting this month, and that revenue will soon flow into state coffers. A state spokesman estimated last month that it could be tens of millions of dollars in new revenue.

Supporters describe the online tax as the closing of a loophole because brick-and-mortar businesses in New Mexico already pay taxes. Applying the tax to online purchases, then, would put them on equal footing.

The Martinez administration has suggested this idea might be acceptable, if it’s part of a comprehensive package of tax overhaul.

The Legislature did approve some changes to the tax code as part of an effort to reduce deductions and broaden the tax base. The ultimate goal is to reduce the tax rate – tax more things, in other words, but at a lower rate. But the changes ultimately approved by lawmakers are far less extensive than what Martinez and House Republicans proposed.

⋄  Overhauling the tax system for hospitals. Under the current system, a hospital’s tax liability is shaped by whether it’s a for-profit or not-for-profit company, among other factors.

Supporters say applying the tax to not-for-profit hospitals is only fair – fixing a loophole, they say, not necessarily a tax increase. There are a variety of other changes, too, that would reform the tax system for hospitals.

The proposal could raise $80.6 million for the state’s general fund.

Again, the Martinez administration says it might be open to this idea, but only as part of broader tax reforms.

⋄  Increasing a permit fee levied on interstate truckers. Analysts say it could raise about $41.9 million, assuming it survives a legal challenge.

There are limits on how states may assess trucking fees and still remain in compliance with the commerce clause of the U.S. Constitution. State analysts say the fee could be struck down in court, depending on how it’s structured.

The Martinez administration says the proposal raises serious legal questions.

⋄  Delaying the phase-in of a corporate income tax cut. Analysts estimate it would raise $12.7 million, though perhaps up to $19 million, depending on economic conditions.

The Martinez administration says postponing the final phase of the tax cut would disrupt New Mexico’s ability to recruit companies and would contribute to an unfriendly environment for business growth.

⋄  Increasing the state’s gasoline tax by 10 cents a gallon. It could raise about $125.9 million. The money would be available for spending only with approval of the Legislature, analysts said.

In the meantime, the revenue would be used to help build reserves – until they reach a certain point, after which the money would generally go into road maintenance funds.

Martinez says the gas tax would make it more costly for ordinary New Mexicans to get around.

⋄  Reducing distributions to a retirement fund for legislators by $900,000. The Martinez administration says this isn’t the right approach and wouldn’t help as much as lawmakers say.

The legislative retirement fund has far more money than it needs, the Governor’s Office says, and there’s actually more than $12 million that can be swept into the general fund for basic operations. Legislative leaders, in turn, say it is illegal to take the funds that Martinez is targeting.

⋄  Increasing the motor vehicle excise tax from 3 percent to 4 percent. The proposal is expected to raise $49.2 million a year, which would go into a reserve fund.

Hopeful

How the governor and lawmakers will settle on a budget isn’t clear.

“The governor is always willing to compromise,” Lonergan said, “but she won’t do it if it hurts our families.”

Rep. Patricia Lundstrom, D-Gallup, chairwoman of the House Appropriations and Finance Committee, said she’s still hopeful the governor will sign the budget.

“There’s nothing wrong with the budget,” Lundstrom said. “I think the focus of the executive is on the revenue package.”

“If she feels she needs to whittle the budget bill (by line-item veto), that’s OK,” she added.

Lundstrom also said she thinks it would be smarter to hold off until the fall for a possible special session, when the state will have new revenue estimates and possibly a better understanding of potential changes to federal Medicaid spending.

Journal Capitol Bureau Chief Dan Boyd contributed to this article.

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