Budget proposals from Richardson, legislators both predict pain

Gov. Bill Richardson on Tuesday released his budget recommendations for next year, two weeks prior to the start of what many expect to be a bruising 30-day legislative session focused on solving New Mexico’s budget crisis.

Richardson’s proposal followed by a day recommendations issued by the Legislative Finance Committee, the Legislature’s budget committee.

If adopted, either spending plan would represent a huge reduction in spending from New Mexico’s go-go days when the state was flush with tax revenues from oil and gas production.

Richardson’s budget team estimated Tuesday in a 181-page report that by the end of this year, state revenues will have fallen $1.2 billion over a two-year period.

The LFC proposes $5.33 billion in spending for the year that begins July 1; the governor’s plan includes $5.36 billion in spending.

All told, Richardson’s proposal plans to trim state spending by $500 million, which includes making permanent $218 million in temporary spending cuts the Legislature approved in October to address this year’s budgetary shortfall.

In addition to that number, Richardson would also cut state government by $158 million — although he doesn’t specify how or where — and claw back $150 million from the stalled brick-and-mortar projects around the state. The money retrieved from those projects would be put into the state’s main account, the general fund.

The LFC, on the other hand, has called for a 2 percent reduction in what state workers earn, a position not universally embraced among state lawmakers or even LFC members.

LFC Chairman Rep. Luciano “Lucky” Varela, D-Santa Fe, said Monday he opposed reducing state worker salaries.

The two proposals are a starting point in a difficult task policy makers face in closing the state’s budgetary shortfall due to a severe cash shortage. Projected revenues can’t match expenses needed for services due to anemic tax revenues. Some have estimated the gap for next year could approach $1 billion if tax revenues continue to trail.

Although it’s difficult to compare with precision the two budget proposals, it appears that on the big-ticket items the LFC and the governor generally agree. Take, for example, public schools. Both the LFC and the governor want to increase spending for next year, although they differ by how much.

Nearly $100 million separate the two, with Richardson wants to spend $2.46 billion, or near 2009 spending levels, compared to the $2.37 billion the LFC has recommended.

On the higher education front the two are further apart. The LFC has recommended $788 million for higher education, the equivalent of a $27 million cut from the spending levels for higher education following mid-year spending cuts. That contrasts with the $21 million increase the governor is recommending for higher education next year.

But Jim Baca, former director of the U.S. Bureau of Land Management, Albuquerque mayor and  the state’s recently retired natural resources trustee, believes there is some fat to trim in higher education spending.

Baca and others shared comments on the budget crisis as part of The New Mexico Independent’s new feature, The Independent Forum.

Baca criticized the Legislature’s proposed cut to state workers’ salaries and suggested ways to trim higher education spending.

“It is easy for them to say there should be an across the board cut of 2 percent on state salaries,” Baca wrote, referring to state lawmakers. “The real issues of efficiencies are left on the cutting room floor. Case in point, the bloated and unnecessary system of numerous branch colleges, institutions of higher learning, and duplicative administrations caused by this. Fewer branch colleges would mean better education.  Legislators will never go down this road, or others like it, because it means losing patronage jobs in their own districts.”

Tax increases and other revenue generators

In addition to spending cuts, both the governor and the LFC showed in their proposals that, at least, in concept they are open to tax increases.

In addition to reducing worker salaries, the LFC has called for nearly $200 million made up through a mix of additional federal Medicaid money that may or may not materialize, possible revenue enhancements, a term that encompasses both tax and fee increases, and possible additional cuts.

The governor, meanwhile, anticipates $200 million in additional revenue for next year based on a Budget Balancing Task Force he impaneled earlier this year and federal Medicaid money that, again, may or may not materialize.

So far, no consensus has emerged among state lawmakers on what taxes to raise, and some lawmakers even question whether to raise taxes at all.

While the governor has said he is open to certain tax increases, a few are strictly off limits, like increasing personal income or capital gains taxes or decreasing business tax incentives or credits, according to a press release his office sent out Tuesday.

“We’ve used these tax cuts and incentives to successfully create thousands of jobs in the state, and I will not give up these tools when we need them most,” Richardson said in the release.

But Richard Anklam, president and executive director of the New Mexico Tax Research Institute and former director of tax policy for the New Mexico Taxation and Revenue Department, said that there were ways to raise new tax revenue without changing tax rates, including reducing or closing tax deductions.

“One would be to adjust the taxation of capital gains and how much we allow itemized deductions for state income taxes,” Anklam wrote in The Independent Forum Tuesday.

Capital gains income is realized from the sale of, say, stocks and other investments.

“This would not involve changing the rates but would make the tax somewhat more progressive,” Anklam wrote.

Another possibility is raising motor vehicle taxes, which are low in comparison to other states, he wrote.

Terri Cole, executive director of theGreater Albuquerque Chamber of Commerce, meanwhile, wrote that the state must first cut and consolidate. But because finding $700 million in cuts alone is impossible, Cole wrote, “we need to identify one tax increase which sunsets when the economy improves.”

Cole suggested reinstating the gross receipts tax on food, which she said would generate about $229 million.

The state of New Mexico exempted food from the GRT several years ago.

“It’s not working to help the poor in the first place,” Cole wrote. “Let’s find a more affordable and effective way to really help the poor.  Cut, consolidate, reinstate a tax that, when repealed, didn’t work, and call it a night.”

Fred Nathan, executive director of Think New Mexico, vigorously disagreed. Think New Mexico is a Santa Fe think tank that was at the center of New Mexico’s successful efforts to exempt food.

Reinstating the food tax would hurt too many New Mexico families, Nathan wrote.

“According to New Mexico Taxation and Revenue Department, the food tax would be a new tax of approximately $460 on the typical family of four in New Mexico. Many of these families are living paycheck-to-paycheck and struggling to make payments on their homes and cars while paying the electric bill,” Nathan wrote.

Nathan suggested other tax increases that could help solve the current budget problems “while also doing some positive social good.”

“These are taxes on tobacco, alcohol, and junk food, all of which contribute to a variety of health problems,” Nathan wrote.

Paul Gessing, of the Rio Grande Foundation, however, wrote that there was no reason to raise taxes on anyone to solve the state’s budget crisis.

“Some of the spending decisions made over the years have made the situation more difficult than it needs to be,” Gessing wrote. “That said, in no particular order, I’d start out by forming a commission to thoroughly analyze the budget for wasteful and unnecessary programs.”

He went on to suggest reducing the number of procedures above and beyond federal minimums covered under Medicaid, the government’s low-income health insurance program.