The New Mexico Legislature finished work on a tax and spending plan that would pay for public education and government services in the coming fiscal year, sending the package to Gov. Susana Martinez. But she has threatened a veto that could shut down government.
The final step for the $6.1 million budget for 2018 came Friday when the New Mexico House of Representatives concurred on changes made by the state Senate. In order to avoid further cuts to public schools and services, the budget includes spending $128 million more than the state’s current projected revenues. Balancing the budget requires the governor to pick and choose from a smorgasbord of fee and tax increases included in other bills.
Those measures include $350 million from House Bill 202, which would extend the gross receipts tax to out-of-state internet sales, increase taxes on hospitals, gasoline and diesel fuel, as well as vehicle sales. The bill also redirects contributions to the legislative retirement fund and increases permit fees paid by truckers.
Other measures also would help boost the general fund and support schools, including Senate Bill 462, which reallocates $72 million in capital construction projects, with $46 million of that going to school districts to restore cash reserves.
That transfer was part of a solvency package necessary to close a deficit in the 2017 budget, which came after a special session in October that was convened to balance the 2016 budget before books were closed. The fiscal problems have led to a severe depletion of cash reserves, which have now dipped below 2 percent of spending and affect the state’s credit rating.
There are smaller revenue generators as well, including a bill to extend the gross receipts tax to all short-term rental properties in the state and to revert $1 million from the cigarette tax to the general fund.
The overall budget increases spending just $23 million, less than 1 percent of current levels.
Together, lawmakers said they have given the governor enough options so she can sign the budget and operate government without calling them back for a costly special session.
“We’ve delivered,” said Sen, John Arthur Smith, D-Deming, chairman of the Senate Finance Committee. “We’ve given her a balanced budget and the revenue to support it.”
“Our budget safeguards the top priorities of hardworking New Mexican families — education, health care, economic development and other vital services,” said House Speaker Brian Egolf, D-Santa Fe.
But an hour after the House passed the budget, Keith Gardner, chief of staff to Gov. Martinez, told reporters the 2018 budget is not balanced without more money, and that is a problem.
“It’s a balanced budget with a wink and a nod,” he said. “Let’s work together. We cannot overspend. The Constitution requires a balanced budget.”
He said the governor is exploring the shutdown of nonessential government services to conserve cash until there is a budget.
Egolf said he is bewildered by the governor saying she has had no communication with lawmakers and threatening a shutdown when he talked with her just two days ago. Senators have said they have included specific spending requested by the executive branch, including efforts to expand economic development and preserve education reforms.
In her own budget proposal, Martinez urged lawmakers to make deeper cuts to capital projects and to reduce the pensions of state employees and teachers, instead of boosting taxes and fees. Neither effort moved forward.
And while the budget and tax package passed the Senate with more than the two-thirds vote that would be needed to override a veto, the House vote on the tax bill was 37-32, with all Republicans voting against it.
Among the issues for Republicans is the lack of a comprehensive tax reform package that would allow Gov. Martinez to lower the statewide gross receipts tax rate, which is now over 5 percent. To do that, Rep. Jason Harper, R-Rio Rancho, sponsored a bill that would have eliminated more than 100 tax exemptions, credits and deductions in order to broaden the statewide tax base to more economic sectors, while lowering the rate.
Though the bill passed the House, it got bogged down in the Senate after testimony from industry groups, including nonprofit organizations and schools that would have paid sales taxes on their purchases for the first time.
A scaled-down reform effort was moving forward Friday as part of HB 191. But that bill, which passed the Senate late Thursday night, preserves some of the breaks, including for nonprofit organizations. Instead of 100-plus changes, it focuses on about 50, calling for sunsets over the next five years, depending on further analysis.
Smith said phasing in the tax changes is the most practical path forward. “I don’t think it can be done in one swoop,” he said.
A joint conference committee that convened Friday to resolve differences between the chambers, lawmakers agreed to recommend passage with some changes, including a clarification that the effort would not bring in new tax revenues long term.
But Harper said the recommendations don’t go far enough. He also pointed to an amendment approved by Democrats that preserved four separate exemptions outright without further analysis — for back-to-school shopping, wind and solar industries and internet web hosting.
He said that’s why such a measure needs to be comprehensive, so specific industries don’t receive preferential treatment.
“We’re going to have virtually nothing left,” he said. “And then we’ll have no reform.”
Gov. Martinez will have 20 days from the time she receives the budget to sign, veto or pick and choose what she wants with line-item deletions. She has until April 7 to do that, but Gardner said she might very well act sooner.
If there is a special session, Gardner said, she could convene lawmakers back immediately after the Saturday adjournment or early next week.
Contact Bruce Krasnow at [email protected].