Friday, April 7, was the last day Governor Michelle Lujan Grisham had to sign into law or veto legislation enacted by the 2023 New Mexico legislature. By the end of the day, the Governor had veto 36 major legislative initiatives including most of the massive tax reform and reduction package but leaving intact rebates.
TAX PACKAGE LINE-ITEM VETOS
Democrat Governor Lujan Grisham gutted the massive tax package carefully crafted by the House describing it as “bloated and fiscally unstable”. Using her line item veto power, she vetoed from the bill a phased-in reduction of the gross receipts tax New Mexico consumers pay on goods and services, a 20% alcohol tax increase, an electric vehicle tax credit and changes to the state’s personal income tax system aimed at benefiting low-income residents and vetoing 20 other major provisions from the tax bill. Notwithstanding the line item vetoes, the tax package nears $1 billion.
What the Governor left intact was the $500 tax rebate for individuals and the $1,000 rebated for married couples filing jointly, expanded child tax credit of up to $600 per child, and changes to the state’s film incentive program. The child tax credit provides more than $100 million in tax relief for around 214,000 New Mexico families. Those families will be able to claim a larger credit of up to $600 per child after the tax credit was expanded.
The rebates will cost the state upwards of $670 million in one-time funding and will be available to all taxpayers who filed 2021 tax returns. New Mexico adults who do not qualify for the tax rebates, either because they did not file tax returns or for another reason, will be able to apply for similarly sized financial relief payments under a separate $15 million appropriation.
The Governor said this of the tax package she signed:
“Every one of these provisions directly helps New Mexicans through supporting working families, bolstering the health care workforce and fostering continued economic growth. … Expanding the Child Tax Credit will help over 200,000 New Mexico families and broaden our successful effort to reduce child poverty rates, which dropped by a full percentage point between 2019 and 2021.”
According to the state Taxation and Revenue Department, by trimming most of the tax changes from the bill, the recurring cost will drop to $150 million as of the 2024 budget year. It will then gradually increase to $246 million by 2027, primarily due to the changes to the film incentive program. The figures do not include the tax rebates, which will be sent out starting in the next several weeks.
The line item vetoes came as a surprise seeing as she had previously advocated for some of the vetoed tax provisions. She had advocated for the reduction in the gross receipts tax rate that would have gradually dropped the state’s base tax rate from 4.875% to 4.375% over a four-year period. Notwithstanding her previous support of the tax reduction measures, she expressed concern that the tax package’s recurring annual cost of $1.1 billion to be fully implemented by 2027 could lead to future spending cuts.
Lujan Grisham said she preferred more gradual changes to the tax code and said this:
“I just want us to be more pragmatic. … I didn’t think it was prudent to do it all at once.”
As to the proposed alcohol tax increase that was pushed by backers as a way to decrease consumption in a state with the nation’s highest rate of alcohol-related fatalities, the governor simply said the “numbers weren’t quite right” without elaboration.
In her executive message to lawmakers announcing the veto, the Governor said the tax bill contained many “laudable tax reform measures,” but said she had “grave concerns about its future sustainability”. The governor said this:
“Given the unpredictable nature of the economy and our state’s reliance on oil and gas revenues, I am not confident this package is fiscally responsible.”
Many lawmakers and advocates who had pushed for the tax changes amid an unprecedented state revenue windfall expressed irritation with the Governor’s line item vetoes.
Santa Fe Democrat Senate Majority Leader Peter Wirth who helped craft the tax package called the vetoes disappointing, but said lawmakers would continue working to improve the state’s tax code. Wirth said this:
“There were a lot of things in there that I believe are important to the state … and it’s frustrating when those get taken away.”
Notwithstanding his disappointment, Senator Wirth said the Senate would not pursue a veto override on the tax package. Since taking office in 2019, the Democratic-controlled Legislature has not tried to override any of Lujan Grisham’s vetoes, but threatened to do so and came close when she vetoed 2 years ago the legislatures capital improvement bill.
Sandia Pueblo Democrat Representative Derrick Lente, the chairman of the House Taxation and Revenue Committee also expressed dissatisfaction with the vetoes saying this year’s tax package was carefully crafted. Lente said this:
“It is disappointing that we will not be able to reduce the tax burden on local businesses, educators, veterans and everyday New Mexicans, or help our state improve access to rural health care and reach our climate goals.”
Links to quoted news sources are here:
In addition to the tax package line item vetoes, Governor Lujan Grisham issued 35 vetoes. Among the most noteworthy vetoes included vetoing the bipartisan proposals to revise high school graduation requirements and establishing a civil rights office under the state Attorney General and overhauling New Mexico’s dysfunctional Game Commission.
The high-profile vetoes included the following:
Senate Bill 426: Establish a civil rights office under the state attorney general. The bill was one of several bills aimed at strengthening oversight of the Children, Youth and Families Department all of which either failed to pass the Legislature or were blocked by the governor. The governor did not sign the bill thereby killing it through a pocket veto without a public explanation. The Governor said she had mixed feelings about the bill describing the concept as valid but saying prosecutors already have tools to investigate neglect and abuse. Attorney General Raul Torrez for his part had pushed for creation of the office as a way to protect the rights of children in state custody, such as foster care. Torrez argued his office could investigate broader patterns of abuse or address problems that aren’t solved through civil litigation.
House Bill 126: Revise school graduation requirements. The proposal would’ve lowered the total credits needed to graduate from 24 to 22. It also got rid of the Algebra 2 requirement. This bill was jointly sponsored by Albuquerque Democrat Representative G. Andrés Romero, an APS teacher, and House Minority Leader Ryan Lane, R-Aztec. The bill would have given students more flexibility to pursue off-campus learning, such as career and technical education. Local teacher union leaders disagreed with the veto. Whitney Holland, president of American Federation of Teachers New Mexico, said this:
“I think we’re approaching this in two really different perspectives. … Our approach to this was the removal of Algebra 2, that was what made this bill so enticing, and I think for families we heard and from educators, practitioners, that has been a barrier to high school graduation. So I think that was overlooked a little bit in the message.”
House Bill 184: Overhaul appointment and removal process for Game Commission which sets hunting and fishing regulations. The commission has had extensive turnover as a result of the Governor removing appointees to the extent that vacancies have left it without a quorum. The bill was intended to stabilize and strengthen the commission by prohibiting the removal of a member except for incompetence, malfeasance or neglect.
Senate Bill 2: Raise judges’ pay. This was a rejection to boost judicial salaries for the second consecutive year. It would have brought NM Supreme Court justice pay to $214,000, equal to a federal magistrate. Supporters argued the pay increase would have helped diversify the court and expand the pool of applicants.
Senate Bill 84: Change system for probation and parole violations. The bill would have reduced the number of people imprisoned for technical violations of parole.
Senate Bill 187: Exclude drug possession from sentencing enhancements for habitual offenders. This bill would have ended sentencing enhancements for drug possession in certain cases.
WHAT THE GOVERNOR DID SIGN
The governor signed the enacted $9.6 billion budget plan for the fiscal year that begins on June1. The budget will boost state spending to record-high levels for the third consecutive year amid a revenue windfall. The Governor did line item veto $21 million from the spending plan before signing it and vetoed some budget language that she said intruded into the executive branch’s authority.
The signed budget bill includes $100 million to bolster a law enforcement officer recruitment fund, $100 million to set up two new funds for conservation programs and upwards of $90 million to increase reimbursement rates for Medicaid providers. The budget also provides funding to give 6% pay raises to state employees and teachers, starting in July.
The states historic oil and gas revenue surplus allowed lawmakers to increase state spending and approve the tax package. The historic revenue surge was fueled by an uptick in consumer spending and surging oil production in the Permian Basin. New Mexico is now the nation’s second-highest oil producer in the country.
The governor also signed bills intended to expand access to health care in a state that’s long struggled with a provider shortage. The measures include emergency legislation to revise New Mexico’s medical malpractice law to ensure independent outpatient clinics can obtain the insurance they need to keep operating next year. Also approved were bills intended to help rural hospitals and address high prescription drug costs.
COMMENTARY AND ANALYSIS
The Governor’s line-item veto’s of the massive tax package and leaving intake the tax rebates amount to a lost opportunity. The $500 and $1,000 tax rebates make a terrific sound bite for a political add or political reelection flyer but in the long-term amount to a negligible amount of money for the individual taxpayer. The upwards of $1 Billion distributed to some 214,000 New Mexico family’s and taxpayer’s for a one time financial gain is short sighted and the money could have been better spent on projects that could have made a real difference in the state’s quality of life.
NO TAX “PYRAMIDING” PROPOSAL
What was glaring from review of the massive tax bill that was hailed as tax reform was any provision on eliminating tax pyramiding. The widely discussed proposed tax exemption for accountants, architects and other professional services that had been proposed as a way to reduce tax “pyramiding,” or taxes being levied several times on the same goods or services was nowhere to be found. The tax “pyramiding” legislation had bipartisan support and the Governor’s support. The tax pyramiding provision proposal drew fierce opposition from Albuquerque and other New Mexico cities and counties, as city officials argued it would reduce their revenue streams and complicate efforts to hire more police officers.
When the Legislative Finance Committee released its Consensus Revenue Estimate for fiscal year 2024 it was reported that New Mexico’s revenues ballooned with the state’s revenues from oil and gas production increasing at record levels. The estimates released projected the state would have an astonishing $3.6 billion in “new” money available for the budget year that starts on July 1, 2023.
When the record amount of surplus revenue was reported, top budget and finance officials in Lujan Grisham’s administration and the Legislative Finance Committee finance officials urged the Governor and lawmakers to use the windfall on one-time expenditures due to the risk of future revenue dips. They urged that the surplus be used for one-time major capital outlays that could be transformative. Instead, the Governor concentrated on tax reform and rebates costing upwards of $1 Billion. The Governor after first supporting tax reductions now claims the tax cuts were not sustainable but she keeps the rebates with little to no explanation.
There is a lengthy list on what the surplus could have been spent upon, but instead will now go to rebates. The list includes major infrastructure needs such as roads and major bridge repair across some of the most rural parts of the state with an estimated cost of $500 million, funding for wastewater projects, dams and acequia projects, the courts, law enforcement and the criminal justice system, funding for our behavioral health care system, job creation endeavors, economic development programs, funding for the Public Employee Retirement funds to deal with underfunded liabilities and benefits.
Not at all surprising, lawmakers called for spending restraint and tax reform despite the revenue windfall, saying a drop in oil prices and a possible global recession could mean a big drop in state revenue collections within the next several years. What is also not at all surprising are fiscal conservatives, especially Republicans, calling for tax cuts and rebates. Whenever surpluses in state revenues occur, such as this year especially, Republicans always begin to salivate and proclaim all taxation is bad and that rebates and tax reform are desperately needed and the only way to go.
The Republican tired and old political dogma has always been that tax revenues are the people’s money and anything in excess of what is actually needed over and above essential government services should be returned to the taxpayer. Governor Lujan Grisham bought into the political rhetoric. It is a short-sighted philosophy believing that only essential, basic services should be funded with taxpayer money such as public safety or that rebates should be made. If that were the case, there would be no public libraries, no museums, no zoos no mass transit expansions and no outdoor sculptures and art exhibits.
The reality is that all of the major new programs now funded by the enacted 2023 budget will require reoccurring funding and revenues from taxation which is probably one of the biggest reasons the Governor declared the tax cuts were not sustainable. What all too often is totally ignored because lack of revenues are major capital outlay projects that are for the benefit of the general public and that improve the overall quality of life. Roads and water projects are such priorities, but are not exclusive.
It is very disappointing that Governor Michelle Lujan Grisham and the New Mexico legislature totally ignored advocating for major capital outlay projects that could be transformative for the state. Projects that could improve the overall quality of life.
Given the sure magnitude of the surplus, municipalities, citizens and interest groups asked for funding for special capital projects such as swimming pools, parks, recreation facilities, sport facilities, such soccer stadiums, and entertainment venues. Some lawmakers put forward different ideas on how to spend some of the state’s budget surplus, including the building of a high-speed train crisscrossing New Mexico from north to south. The Governor and the legislature pretty much ignored funding such projects. This year, Albuquerque area Democrat State Senator Bill Tallman suggested a state funded Albuquerque downtown stadium or arena to revitalize the area and he was given the cold shoulder.
For the last two years, the New Mexico United soccer team has been trying to get taxpayer money to build a soccer stadium. In 2020, the soccer team was able to secure $4 million in state funds. In 2021, Albuquerque taxpayers were asked to support a bond to pay for the stadium, but it was rejected. With a $3.8 in surplus revenue, the legislature could have fully funded the facility which will be around $16 million.
Other major capital outlay facilities and projects that has been discussed for decades is improving the New Mexico State Fair and all of its aging facilities. In particular, demolishing the 60-year-old Tingly Coliseum and building a multipurpose entertainment and sports facility with the capacity of upwards of 20,000 has been a dream of many a Governor, State Fair Commission and Fair Managers.
On February 25, 2019 it was reported that there is a need for such a facility and EXPO New Mexico was in the final stages of conducting a feasibility study on the construction of a new arena on the state fairgrounds. Tingley Coliseum has been around since 1957 with capacity for 11,000. Over the years it’s been remodeled and upgraded but it is still a state fair rodeo venue. The state and Albuquerque for decades has needed a large capacity, multipurpose entertainment venue of upwards of 20,000.
Now that the 2023 legislative session has come and gone, preparations are now on the way for the 2024 legislative session with the Governor already indicating priorities she will seek in the 30 day short session where she will set the agenda. It is very likely that the state revenue historic surpluses will continue. The Governor should seek to identify major transformative capital improvement projects that will have long term impacts on the states quality of life and not on another round of short term benefit tax rebates.