June 13, 2017

Legislative analysis shows ‘technical error’ in tax overhaul could have cost state big

If it had passed in its original form, the tax overhaul supported by the governor and legislative Republicans during the recent special session would have hurt the state.

That’s the news from the finalized fiscal impact analysis done by staffers with the Legislative Finance Committee, first flagged by the Albuquerque Journal.

According to the analysis, a technical error on the part of the bill’s drafters threw off revenue estimates by more than $100 million. The error had to do with the repeal of a nonprofit receipts exemption that applies to nonprofit organizations, including hospitals.

The bill itself was finalized shortly before the special session began and was introduced hours after the special session came to order. The next day, the 430-page bill was heard in committee, where it failed on a party-line vote. Democrats, who voted against passage, said the bill was too complex to be passed so quickly and warned that small mistakes could have big impacts on the state’s budget, already in a fragile state.

With the technical mistake, analysts found that the bill could not be revenue neutral, as intended by sponsor Jason Harper, R-Rio Rancho.

The bill’s authors also erred by assuming a full year’s worth of revenue would enter the new system—the bill’s effective date was Feb. 1, seven months into the fiscal year, which begins each July 1. Again, this would lower the revenue estimates.

NM Political Report reached out to Harper Tuesday morning but did not receive a response before publication.

When asked what was incorrect with the analysis, a spokesman for Gov. Susana Martinez gave NM Political Report the same answer that appeared in the Journal. Joseph Cueto questioned the FIR’s facts.

“It’s no surprise that the Democrat-controlled LFC released a flawed analysis proving they’re against allowing hardworking New Mexicans to keep more of their own money. Dishonesty and the status quo have always been easier than reforming our archaic tax system, but New Mexicans deserve better,” Cueto said in the emailed statement. “Democrats in the legislature fought tooth and nail to raise taxes by hundreds of millions of dollars – including taxes on gas and vehicle purchases.”

The statement did not address which area of the analysis the governor’s office found flawed in the LFC report.

LFC analysts are tasked with providing objective analysis of bills and they work for the entire council, not just the Democratic majority.

It is similar to the Congressional Budget Office, which is tasked with providing independent, non-partisan analysis of legislation for Congress. That office also comes  under fire from partisan sources, such as when an President Donald Trump’s healthcare chief Tom Price slammed the CBO’s analysis of the House healthcare bill.

The tax overhaul FIR, as with the preliminary version, noted it would be “impossible to score precisely the fiscal impact of this bill, or any tax reform bill of this magnitude, due to limitations in available data.” The analysis noted that unintended effects could lead to either revenue shortfalls or revenue windfalls.