NM tax expenditures hit record high of $3 billion last year, as state child poverty ranking improves

SANTA FE — Amid an ongoing state revenue bonanza, New Mexico provided a record-high $3 billion in tax credits, exemptions and deductions in the most recent budget year.

The tax breaks, technically known as tax expenditures, include a new child tax credit that more than 238,000 tax filers claimed in 2023, with an average credit of $550 per return, state tax officials said Monday.

While that credit will not be factored in until next year, a bevy of other credits and spending initiatives has already led to a lower child poverty ranking for New Mexico in a new national measure.

The state’s official poverty measure calculated by the U.S. Census Bureau is still the nation’s highest at 27.4%, but New Mexico’s supplemental poverty measure is 8.9% — or slightly lower than the national average of 10.4%.

The supplemental measure factors in government benefits, like New Mexico’s state-subsidized lunches for public school students. It also includes tax credits and cost-of-living calculations.

“Of course we’d like to do even better ... and there’s obviously still more work to do,” state Taxation and Revenue Secretary Stephanie Schardin Clarke told members of a legislative panel on Monday.

But she said the supplemental poverty measure is a more accurate measure than the traditional poverty ranking, adding, “It’s wonderful to be in the middle of the states instead of the worst in the nation.”

New Mexico has long struggled with high poverty rates, and the state has the nation’s highest percentage of Medicaid enrollment with more than 40% of state residents enrolled in the joint federal-state health care program.

In recent years, however, state lawmakers have tapped surging revenue levels generated largely by record-high oil production to issue tax rebates, expand tax credits and enact a tuition-free higher education initiative.

Senate Majority Leader Peter Wirth, D-Santa Fe, said the Census Bureau’s supplemental poverty measure shows some of the policies adopted by lawmakers in recent years have paid dividends.

“We take all the pieces by themselves,” Wirth said Monday. “But when you actually look at what the impact is, this is pretty extraordinary.”

However, at least some of the state’s most expensive tax expenditures have been controversial in past years, in part because the state foregoes tax revenue it would otherwise collect to try to incentivize economic development.

That includes the state’s film tax credit, which provides a 25% rebate to film companies for most direct, in-state expenditures. Long-running TV programs are eligible for an additional 5% — or 30% in all.

In addition, film productions that shoot 60 miles or more outside of Albuquerque or Santa Fe can collect an additional 10% rebate on top of the base incentive.

Gov. Michelle Lujan Grisham signed legislation in 2019 that more than doubled the annual spending cap on film rebates — from $50 million to $110 million per year — and the state spent about $102.2 million in the 2024 fiscal year on film credits, according to state tax department data.

That number could increase even higher in coming years, as the annual cap is set to gradually rise to $180 million under legislation approved in 2023.

New Mexico’s Taxation and Revenue Department is required under a separate 2023 law to compile an annual report on the state’s tax expenditures.

This year’s report, presented Monday to the legislative Revenue Stabilization and Tax Policy Committee, found overall spending on tax breaks grew last year despite 15 expenditures either expiring or being repealed by legislators.

In addition to the child tax credit and the film rebates, other hefty state tax expenditures include a food tax exemption and tax deductions for certain hospitals and types of medicine.