The state House of Representatives early Thursday passed a scaled-down version of a bill that closes some tax loopholes, but amendments mean that any revenue will effectively not help pay for services until 2018.
More important, the House amended a bill that sweeps money from unspent balances, including $220 million from a tobacco settlement fund. The measure now needs to go back to the Senate for consideration in order for the state to be in compliance with its constitutional mandate of a balanced budget.
The House action came in the early morning hours Thursday, the seventh day of a special legislative session called by Gov. Susana Martinez to help address the state’s fiscal emergency.
Money from the yet-to-be-approved sweeps bill is earmarked to close a deficit of $131 million from the 2016 fiscal year, which ended more than three months ago. The state has a constitutional mandate to operate on a balanced budget — but Martinez and the state have been, and as of this morning are still, in violation.
House Majority Leader Nate Gentry, a Republican ally of Martinez, made an unusual plea on the House floor late Wednesday to Democrats, asking them to pass the budget bills with “a super majority” — two-thirds of the 70 members — so the measures would become law as soon as the governor signed them. Without it, the bills won’t take effect until January.
Gentry said the state is at risk of bouncing checks if the deficits are not resolved.
“We just don’t have the money to pay for state government,” he said at a Thursday morning news conference. But Gentry said the Legislative Finance Committee does not think the emergency clause in the bills is essential, as long as they become law.
He expects the Senate to concur with the House budget bills today or Friday.
Gentry said he is aware that the Moody’s bond-rating agency has put the state’s credit rating on a watch status, pending the deficit issues. “We’ll watch that closely,” he said.
In addition to the 2016 deficit, lawmakers have been told that 2017 spending is running some $400 million more than revenue.
Within 12 hours in one day, the Senate passed a package of bills to restore solvency, meaning the budget deficit could have been resolved if the Republican-controlled House concurred on the measures.
Now, six days later there is still not an agreement on the bulk of the package.
On Sept. 30, the Senate with bipartisan votes approved measures to reallocate unspent capital outlay money to the general fund, cut 2017 spending by $162 million, and increased taxes on large out-of-state Internet retailers such as Amazon. It also reduced state aid to cities and counties, closed some tax loopholes, and voted to pause income-tax reductions to businesses.
The House approved the capital outlay sweeps with no amendments and those two bills are now on the governor’s desk. Together they will add perhaps $100 million to the 2017 general fund.
But the rest of the Senate package has either been changed or did not pass the House with the super-majority required for speedy implementation.
The state’s fiscal crisis now enters uncharted waters.
In approving the tax package, the House nixed the provision to collect taxes from Internet retailers. It also removed a cap on a tax credit used by companies that create high-wage jobs. The credit has paid out far more than lawmakers expected and been applied to businesses such as oil and gas companies that receive benefits in other parts of the tax code.
Gov. Martinez and Republicans have agreed with efforts to scale back the measure. Democrats sought a cap of $24 million a year of payouts on the credit, which means companies that qualify might have to wait to receive their money, which can be as high as $12,000 per job.
The cap would save the state $25 million in the next two fiscal year. Overall House changes in the tax package reduce savings from $45 million to $10 million.
House Republicans have argued that a cap on the credit sends the wrong message to businesses about predictability. The tax on Internet shoppers, though backed by many business owners who want to see a fairer tax system, qualifies as a new tax, and Martinez has said she will veto it.
The House also removed the part of the bill that reduces funding to local governments under a complicated agreement.
The biggest emergency now for the state is the sweeps bill, and the House passed a slightly different version. The Senate bill taps $78 million from unspent accounts throughout state government, including $25 million from school districts that have banked surpluses of $225 million over several years.
The House boosts total sweeps by another $18 million with a slightly different mix of transfers, but leaves school cash surpluses untouched.
The one account transfer that had bipartisan agreement from lawmakers before the start of the session and the governor is also included in that measure. It would use settlement money from Big Tobacco to offset the damage of cigarette smoking to balance the 2016 budget.
If the sweeps bill doesn’t’s pass with an emergency clause, then the state financial audits for 2016, due before the end of the year, will show a deficit for the fiscal year that ended June 30.
The state actually has a criminal law that prohibits the Department of Finance and Administration and the Office of the State Treasurer from “knowingly” spending money that is not supported by revenue. So far Attorney General Hector Balderas has declined to enforce that law.
According to a bill analysis, if the fund sweeps do not pass and become law immediately: “The general fund will have a negative balance and will not have enough money to cover any necessary transfers should revenues not materialize in fiscal year 2017.”
Both the House and the Senate are scheduled to return to session this afternoon.
Contact Bruce Krasnow at [email protected].