State lawmakers on Friday made it clear they are considering a brew of spending cuts, money transfers and tax changes to walk New Mexico back from a fiscal cliff that has left the state in violation of its constitutional mandate for a balanced budget.
For months, Democratic lawmakers have been urging Gov. Susana Martinez to call a special session to balance the books for 2016, and set updated targets for 2017. When she finally did late Wednesday, there seemed to be no specific plan for moving forward.
“If it looks like chaos, that’s exactly what it is,” said Sen. John Arthur Smith, D-Deming, as he convened his Senate Finance Committee at 4:30 p.m. Friday.
But several plans were being circulated on Friday — some of them bills backed by the governor and the House Republican majority, others supported by Senate and House Democrats.
The backdrop came as Democrats continued to criticize Martinez’s use of the special session for introducing contentious crime bills to increase prison sentences and restore the death penalty instead of focusing exclusively on the deficits. The special session will cost taxpayers about $160,000 if it lasts three days, as many legislators believe it will.
“There is a crisis on the budget and that’s the most pressing problem we need to address,” House Minority Leader Brian Egolf, D-Santa Fe, said on the House floor.
Later in the day some formal action occurred on the budget measures. Proposed fixes were being debated by the Senate Finance Committee late Friday. Other ideas were being circulated by House members with the first scheduled for a public hearing on Saturday.
The proposed solvency measures would touch every aspect of state services from workers and retirees to college campuses and special education students.
Local governments may receive less state money, a cut in corporate income taxes might be delayed for business owners, and shoppers buying products on Amazon.com may end up paying more in sales tax.
Keeping track of the moving train of legislative debate was especially complicated because many bills and committee sessions were not posted on the Legislature’s website, or even available for public inspection.
With the Senate Finance Committee meeting Friday evening, a bill to “sweep” unspent money into operating accounts passed in 30 seconds. Another on capital outlay changes was approved in one minute. A measure to collect taxes on medical marijuana sales had a short discussion and then advanced.
The debate is about patching the general fund budget for two separate fiscal years.
For 2016, which ended June 30, spending was about $130 million above revenue. Both lawmakers and the governor have agreed to transfer $220 million of reserves from a tobacco settlement fund to balance the books retroactively.
Rep. Larry Larrañaga, R-Albuquerque, who chairs the House Appropriations and Finance Committee, said the entire $220 million now used for smoking cessation programs and cancer research will be tapped.
Larranaga said the goal of his committee is to bring 2017 reserves to about 2 percent of general fund spending, or about $130 million. That’s still well below what is recommended by bond-rating firms as Moody’s, which often wants a 5 percent cash cushion. Moody’s has placed the state’s credit now-solid credit rating on watch pending the special session.
The larger challenge for lawmakers is to recalculate spending for the 2017 budget, which is already three months old. Estimates now say the state’s $5.8 billion budget will be short some $400 million in revenue.
Larrañaga is targeting $460 million in spending cuts, sweeps from unspent accounts and fund swaps, where money from capital construction projects is transferred to the general fund and then replaced with bond money.
Budget documents and other information obtained by The New Mexican indicated the following measures are being considered:
- A transfer from unspent fund balances of $60 million to $80 million, including $16 million set aside for special education services.
- Reallocation of some $100 million in capital construction projects paid for with general fund dollars going back to 2013. Some of the projects are no longer viable. Others would be refinanced with bonds.
- A reduction in gross receipts tax reimbursements the state pays city and county governments starting Jan. 1. The change in reimbursements would save the state about $7 million.
- Spending cuts of $108 million, about 1.7 percent of the 2017 budget. Most agencies would see reductions of 1 to 3 percent. Under various proposals, public education cuts might be $57 million, and reductions to universities and community colleges would be $25 million.
Gov. Martinez and the Taxation and Revenue Department have also identified several tax credits and exemptions that have cost the state more than anticipated. Amendments to a tax credit paid to businesses for new high-wage jobs, and changes to other tax credits and exemptions, could save $47 million in 2017 and $70 million in 2018.
Other measures were considered late Friday as well. For instance, the Senate Finance Committee supported lifting the limit on the number of medical marijuana plants that can be produced by commercial growers, and taxing patients who use the product as part of the state’s medical cannabis.
And in a 5-4 vote, the committee approved a bill to freeze the planned corporate income tax reduction for two years. Approved in 2013, reductions are phased in over five years and reduce the rate from 7.6 percent to 5.9 percent. The bill, which is opposed by Martinez, keeps the rate at 6.9 temporarily and saves the state from $5 million to $13 million.
Another bill proposed by the governor would cut the required pension payments from agencies for some state workers and have those employees pick up that amount themselves. The details of the bill were unclear Friday, but it has already drawn opposition from employee unions that say the measure amounts to a pay cut.
Earlier Friday, the House Appropriations Committee approved the bill that pays for a three-day special session. It authorized $79,000 for the House of Representatives; $53,000 for the Senate; and $25,000 for staff to work over the weekend.
“I understand the concern of the public,” said Rep. Luciano “Lucky” Varela, D-Santa Fe, who retires in December after serving 30 years. “We’re spending more on a situation we created. I don’t think we’re going to fix it in three days.”
Larrañaga admitted the bevy of items submitted on the budget as well as the crime-and-punishment proposals might push the session beyond the three days. In that case, the panel would have to find additional money. The funds are being paid out of money allocated to the Legislature, some of it earmarked for redistricting work that would come after the 2020 Census.
“We hope we can do this in three days,” Larranaga said. “It can go up to 30 days.”
Contact Bruce Krasnow at [email protected].