The New Mexico House of Representatives passed a spending plan late Wednesday that boosts funding for classrooms and the courts, while cutting money for colleges and universities and leaving most other agencies with no new money.
A companion bill also headed to the Senate, House Bill 202, would raise more revenue for future years by boosting fees and taxes. The $250 million a year in new ongoing revenue is needed to avoid more spending cuts and to replenish cash reserves, said sponsor Carl Trujillo, D- Santa Fe.
“We are bleeding, we need to stop that bleeding,” Trujillo said as he held up a graph showing the state’s diminished reserves.
The House approved the revenue measure first, because the proposed budget needs some $157 million in additional money to meet the constitutional requirement for a balanced budget.
“We had to have the tax package,” Rep. Patricia Lundstrom, D- Gallup, who chairs the House Appropriations and Finance Committee, said on the House floor. “We had to have the revenue, we cannot put a budget out that is not balanced.”
Debate on both bills started Wednesday night and lasted for several hours with Republicans opposing both measures, saying the state is still spending too much money.
“This bill does not prevent cuts to any department,” said Rep. James G. Townsend, R-Artesia, “and there are still departments that could be cut that would reduce the burden on families.”
The vote on both measures broke along party lines, 37-32. Democrats hold a 38-32 majority, but one member was out with a medical condition.
HB 202 would extend the sales tax to all internet transactions and close loopholes so nonprofit hospitals and health care providers would start paying the gross receipts tax. The bill also would increase permit fees for heavy trucks, boost the tax on the sale of a car or truck to 4 percent from 3 percent, and divert some money from the legislative retirement fund.
A portion of the bill that would have taxed nonprofit organizations when they make purchases was eliminated from the final package.
With a downturn in the price of crude oil crimping state revenues, the state has blown through its cash reserves, using the savings to pay for day-to-day expenses such as public education and Medicaid. Unspent money once stood at over $700 million, 11 percent of overall spending, but now totals less than 2 percent of spending — and dipped below zero for a time last year. The depletion of cash reserves was one reason cited by by Moody’s Investors Services for lowering the state’s bond rating and changing its outlook to negative.
“Part of the fear is falling further down in a bond rating,” said Trujillo. “When that happens this will cost us tens of millions of dollars in borrowing power. Our public projects will cost us much more to build.”
Despite a promise by Gov. Susana Martinez to replenish cash to 5 percent of ongoing spending — about $300 million — her own proposals fall short of that goal.
The $6.08 billion plan debated by the New Mexico House of Representatives on Wednesday calls for spending that is just $8.3 million above current levels. But it also shifts money from some education reforms backed by Gov. Martinez to shore up per pupil funding so-called “above the line” money under the state equalization formula.
House Republicans had rejected expanding the internet tax during a special session in October, called to close $600 million in budget deficits over two fiscal years. On Wednesday, however, the GOP leadership unveiled its own ideas with some of the same tax measures backed by Democrats, including extending the gross receipts tax to all online sales and health care providers.
Under current law, online internet sellers without a physical presence in the state aren’t required to charge taxes on sales and do not pay the tax to state and local governments. Locally owned stores must pay the tax, however, and see that as a disadvantage.
Likewise, nonprofit hospitals with strong operating surpluses, such as as Christus St. Vincent Regional Medical Center and Presbyterian Healthcare Services, do not pay the tax, while for-profit hospitals and clinics do.
Rep. Bill McCamley, D- La Mesilla, said the tax debate is long overdue and if the revenue is approved can help that state pay for needed services in years to come.
“This is very small and very reasonable to help diversify our taxes, this hasn’t been done in a long time and if this can get done it will prove to benefit the people of New Mexico for years to come.”
At a news conference earlier Wednesday, Republican Rep. Jason Harper of Rio Rancho said GOP House members are bringing forward measures that would raise money and restore tax parity. The Republicans also support a few other changes, such as slowing more capital projects and taxing gasoline at the wholesale level.
“We don’t like train wrecks. We’re willing to compromise,” said Rep. Larry Larrañaga, R-Albuquerque.
“We’re not saying their approach is all wrong,” Harper said of Democrats.
In fact, the biggest difference between the plans is that the Republicans would raise just enough money to maintain spending and replenish reserves to 3.5 percent, not build in recurring revenue for the long term.
“New Mexico does not have a revenue problem, it has a spending problem,” said Rep. Nate Gentry, R-Albuquerque, the House minority leader.
The GOP does not support a permanent tax increase on vehicle transfers to 4 percent from 3 percent, and opposes an effort to boost permit fees for heavy trucks due to some possible legal issues. Both measures included in the House plan passed by Democrats.
They also want to tap the legislative retirement fund deeper than Democrats do and want to borrow $25 million from an account used to rebate film and media productions in the state. Harper said the film tax credits would still be paid, but companies might have to wait longer for the money.
Harper said he could not speak for Gov. Martinez, but he thinks she would accept some of the tax equity measures as a way to even the playing field while holding the line on new taxes. “She has said she supports broad-based reforms and parity that treats all taxpayers uniformly,” he said.
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House Bill 202 would raise $250 million for fiscal year 2018, with that increasing to $277 million by 2021. It would:
o Extend the gross receipts tax to all hospitals and health care providers, adding $38 million next year to the general fund and $20 million for city and county governments.
o Increase the excise tax on a vehicle purchase from 3 percent to 4 percent of the price, minus any trade-in value, raising $49 million for 2018.
o Boost the cost for heavy truck permits, paid annually by trucking companies, to raise $68 million for the general fund.
o Allow the state to collect gross receipts taxes on all internet sales to raise $8 million to $38 million for the general fund and $5.8 million to $20 million for local governments. Amounts would increase over time.
o Temporarily suspend contributions to the Legislative Retirement Fund, freeing $900,000 a year for spending on services.
Highlights of 2018 appropriations bill that was approved by House Appropriations and Finance Committee:
o General appropriations of $6.087 billion, an increase of $8 million from current spending.
o Public schools spending of $2.69 billion, including an increase in the per-pupil guarantee of 1.3 percent.
o Higher education general fund spending of $779 million, down 1 percent.
o Public safety funding includes a $2 million special appropriation for the Department of Corrections to provide contracting for private prisons and inmate health care costs.
o Judiciary spending increases 2.5 percent. This includes $2.5 million for jury costs and magistrate court leases and $1.1 million more for the Law Offices of the Public Defender.
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