The 60-day legislative session ended Saturday with a down-to-the-wire agreement on a sweeping tax bill that will raise rates on e-cigarettes and new vehicles while nearly doubling an income tax credit for some families.
The scaled-back version of House Bill 6 approved by the Senate in the last 20 minutes before the final bang of the gavel was a fitting end to a session dominated for better or worse by the state’s financial outlook.
Driving the session was a whopping budget surplus and the substantial increases in funding for education that it has financed. An oil boom generated the windfall, but there was fear among several lawmakers about what might befall New Mexico if fickle energy markets take a turn.
For Republicans and even some skeptical lawmakers on the other side of the aisle, the tax bill represented a sort of “only in Santa Fe” paradox, with newly elected Gov. Michelle Lujan Grisham looking to raise revenues at the same time that the state had a surplus of $1 billion this year. The projected surplus for the budget year that begins in July is another $1.1 billion.
But for many Democrats, the tax bill was an opportunity to shore up the state’s finances for the long term, wean New Mexico off its reliance on oil and get past the last administration’s budget cuts and what they view as its ideology of austerity.
“The best time to fix your roof isn’t when it’s raining. It’s when the sun is shining,” Lujan Grisham told reporters Saturday.
Lawmakers steered a lot of oil boom money into one-time expenditures, such as roads. But many Democrats argued the state had to raise certain taxes to keep up with increased spending on education, raise salaries and add employees at government agencies that have been understaffed.
Majority Democrats said the moves they made were fiscally responsible.
“I’m not going to put this Legislature or the governor in the position of giving a pay increase one year and taking it back the next,” said House Speaker Brian Egolf, D-Santa Fe.
The debate over what taxes to raise and by how much led the House and Senate to an impasse last week.
The House approved HB 6. But the Senate stripped from it an increase in the personal income tax. So on Saturday, a negotiating committee of lawmakers from the House and Senate announced a deal that would bring back some of those tax increases under certain circumstances.
The deal also would raise the tax on purchases of motor vehicles from 3 percent to 4 percent. And it would cut the deduction for capital gains from 50 percent to 40 percent.
Other facets authorize collection of gross receipts tax on internet sales and levy a new tax on e-cigarettes. Anti-smoking advocates argued it was still too small. The tax also reduced taxes on cigars to 50 cents a stick, down from 25 percent.
HB 6 would change how hospitals are taxed, too.
And the state would increase the Working Families Tax Credit from 10 percent to 17 percent while also creating a deduction meant to offset the higher rates that some New Mexicans ended up paying under the federal Tax Cuts and Jobs Act.
The deal calls for higher personal income taxes, too, if revenue for the state’s general fund does not grow more than 5 percent from the current fiscal year through the next one.
At that point, the state would raise the personal income tax rate from 4.9 percent to 5.9 percent for high earners. For married couples filing jointly, for example, the new rate would only kick in if their earnings top $315,000.
“One of our priorities was to bring progressivity into the tax code. I think we were able to achieve that,” said Rep. Javier Martinez, D-Albuquerque, who sat on the negotiating committee.
In all, the agreement is expected to raise about $70 million for the state’s general fund in the next fiscal year, with tens of millions of dollars more specifically for roads and local governments.
The original version of the bill called for more than $300 million in tax and fee increases, demonstrating the extent to which senators managed to rein in the legislation. That will leave New Mexico with about 20 percent of its general fund in reserves, analysts estimate.
Republicans argued there is simply no reason to raise these taxes at the same time the state is enjoying a budget surplus.
“We’re in this position of raising taxes right now because you’re spending too much money,” Rep. Jason Harper, R-Rio Rancho, told the committee.
But the House approved the bill on a voice vote. This means the votes of individual representatives were not known nor recorded.
The Senate was another matter.
For a moment, it looked like Republican senators might block the bill. The Senate began debating the final version of HB 6 with less than an hour to go in the session. Lawmakers could have filibustered until the chamber adjourned at noon.
But a leading critic of the proposal, Sen. Mark Moores, R-Albuquerque, said he decided against talking the bill to death. He wanted a vote by roll call so that senators would be on the record.
With time running out, senators approved the deal 23-18. One Republican — Sen. Gay Kernan of Hobbs — voted for it. Three Democrats voted against it. They were Sens. Joe Cervantes of Las Cruces, Gabriel Ramos of Silver City and John Sapien of Corrales.
The vote gave Lujan Grisham one last win for the session, even if it included some big compromises.
It was a dizzying time, and a test of just how far the blue wave in last year’s election and the governor’s 14 percentage point victory would go in advancing her agenda.
Lujan Grisham took several defeats this session. Eight of the 26 Democrats in the Senate joined with Republicans to vote down a bill on abortion rights, for example. A powerful Senate committee blocked legislation she backed on early childhood education. And several gun control measures stalled in committee.
“If you’re winning every battle, then you’re not taking on tough enough battles,” Lujan Grisham said.
The defeats set the stage for battles within the Democratic Party that could burst into the open heading into the 2020 election. That’s when state senators are up for re-election. Left-wing members of the Democratic Party will be raring to take on conservatives they fault with stymieing their agenda this year.
The Working Families Party of New Mexico, which was part of efforts that ousted some moderate or conservative Democrats in last year’s primary election, lashed out Saturday at what it called a conservative coalition in the Senate.
It “systematically weakened bills to benefit the rich and well-connected,” the Working Families Party said. The group said it would recruit primary challengers to take on these lawmakers in next year’s elections.
As for Lujan Grisham, she pointed to core changes that she said will improve the state. The $7 billion budget includes nearly $450 million in new funding for education. Teachers and other school employees will receive 6 percent raises.
The Legislature approved an increase in the statewide minimum wage, too. It will rise from $7.50 to $12 by 2023. But it doesn’t contain an ongoing escalator for inflation, something the governor wanted.
Lawmakers raised the cap on incentives for the film industry, passed requirements for utilities to increase the use of renewable energy and set up an ethics commission. Voters last year overwhelmingly authorized creation of the ethics commission.
Still, lawmakers effectively punted on major changes to the state’s underfunded pension programs.
Outnumbered Republicans lost most of the legislative battles.
Harper, though, had a sort of warning for Democrats as the session concluded.
“Our friends on the other side of the aisle are overreaching,” he said. “They see the most recent election as a referendum that New Mexico wants to go progressive. That is a big overreach.”