“It used to be that New Mexico was not as deeply affected as the rest of the nation during a recession, but that’s not the case this time,” Fiscal Policy Project director Gerry Bradley said. “The run-up to this recession — the housing boom and high energy prices — had a significant impact on the state’s economy. Employment was up, revenue was up, and so was spending. But we ended up paying for the good times when those two economic drivers crashed.”

The state’s 8.2 percent unemployment rate continues to trail the national average of 9.5 percent, thanks to infusions of federal money — but New Mexico’s economy won’t improve until the national economy improves, the report says.

The largest employment rate declines in the U.S. occurred in Nevada, with New Mexico tying with Mississippi, according to the federal Bureau of Labor Statistics (BLS) website. Nevada’s employment rate dropped by 1.8 percent between July 2009 and July 2010, according to the BLS; New Mexico and Mississippi saw declines of 1.3 percent.

New Mexico’s average personal income grew modestly during the recession, due almost entirely to increased federal spending on Social Security, Medicaid, unemployment insurance, and stimulus payments, the report states.

This means that the lowest income bracket in the state pays the most taxes by percentage of income. The analysis includes all taxes paid–income, sales and excise, and property taxes–factored in with offsets that people use to reduce their tax burden.New Mexico Voices for Children–an advocacy organization for children–released a statement about the report, saying that when you compare it to a similar ITEP report done in 2003, the overall taxes paid as a percentage of income had improved in New Mexico for all income brackets. At the same time, changes in New Mexico’s tax code in 2003 mostly benefited the higher income earners in the state, which has led to the regressive nature of the tax code.

The analysis shows that New Mexico’s lowest income earners pay 10.8 percent of their income in taxes, while the highest income earners pay 4.5 percent. The report points to the reduction of the top income tax rates in 2003 as a big factor in making New Mexico’s tax structure regressive.

After the 2003 reductions, single filers making over $16,000 have paid the same state income tax rate across the board in New Mexico, which is 4.9 percent.

“While things have improved some for our low-income workers, the real story here is that things have vastly improved for those in the highest income bracket,” said Gerry Bradley, research director for New Mexico Voices for Children.

“The lower your income, the higher the percentage of it you pay in sales taxes,” said Bradley, “This is because lower-income families generally need to spend all of their income on day-to-day necessities that are taxed, while those in higher brackets can set some of their income aside.”

One of the revenue raising options being considered by Gov. Bill Richardson’s budget balancing task force is a surtax on high income earners. For sake of comparison, here is a chart of all state income tax rates for single filers in the country.

Richard Berry speaks with NMI and other press on election night.

When Richard Berry moves into Albuquerque’s mayor’s office in December, he’ll inherit a government faced with significant economic challenges. While Mayor Martin Chavez was hammered during the campaign for companies closing shop and leaving town, the reality is that Albuquerque itself—like other cities—is being hammered by the worst economic crisis the nation has seen in generations.

The conditions in local job markets are “grim” according to the Sept. 24 state labor report. In the past year, Albuquerque has lost 14,500 jobs, and the state as a whole has lost 30,900. It’s the worst the state has seen since January 1944, the report said.

“Economically, we are in tough times,” Berry told the Independent Tuesday night as results were streaming in at the Sheraton Uptown. “There’s no question about it.”

“I don’t envy him,” local economist Gerry Bradley, of New Mexico Voices for Children, said Wednesday. “Any mayor who comes into this situation is going to be in a world of hurt. Most of us are astonished at how badly the economy is doing. We don’t have experience looking at an economy this bad, to tell you the truth.”

Bradley’s observation was echoed by Lee Reynis, who heads up the University of New Mexico’s Bureau of Business and Economic Research.

Reynis said she has not seen such a deep recession in her lifetime, and it could get worse before it gets better.

“This is a pretty serious recession, no question,” she said. “The first half of 2009 was weaker than what we thought it would be, and it’s not clear what the trajectory is.”

For Albuquerque, Reynis said, one serious problem is a decline in gross receipts tax, which is largely responsible for funding city government.

The gross receipts tax is a broad-based tax, Reynis explained. That employment is down across the board–which it is in Albuquerque for the most part, with the exception of education, health care, and some government jobs–indicates that gross receipts tax collections are down significantly.

The near-dormant housing construction industry has had a serious impact on the city’s coffers, as have “incredible” declines in retail employment, she said.

Ultimately, Reynis said, the big question is whether or not a graph of the recession will look like a “U” shape or a “W” shape when it’s all said and done.

“We have to recognize that we’re going through a cycle that we’ll climb out of,” she said, “but a lot of us are also wondering if there will be a second downturn making it look more like a “W,” with two troughs.”

Reynis said that if city leaders envision that the city will come back in the not too distant future, they should strive to continue providing services rather than undertaking dramatic cuts or laying off people.

“You don’t want to add problems to the economy by cutting government spending, which would have ripple effects,” she said. “You want to respond in a deliberate and measured way [by finding] money within the city to use in an effort  to tide you over without cutting critical services.”

“So, for an incoming mayor, I’d say you get people savvy about what the opportunities might be. It’s an economic and fiscal crisis. We need to figure out how to get through it, recognizing that we will get through it.”

Berry said Tuesday night he’d draw from his background in business to show him the way.

“As a business person, you go through difficult times, you go through good times,” he said. “You learn how to build budgets that you have to live by personally. And you have a profound respect for people that work with you in your organization.  So I think through these tough times it’s going to be some of those skills and some of that attitude that I bring in that are going to help us.”

And he indicated he believes Albuquerque will pull out of it, just as Reynis does.

“I like to believe that the economy is starting to trend in the right direction,” he said. “I think the unemployment numbers are too high.  We’ve got a long ways to go but Albuquerque’s a great city. We’re going to be fine in the long run.”

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But Nash writes that Richardson is standing firm in his opposition, insisting the tax cuts are an economic development tool. The 2003 tax cuts lowered the top state income tax rate from 8.2 percent to 4.9 percent. The state phased in the reductions in over several years.

Richardson has basically held the line for weeks against repealing the 2003 tax cuts as a way to address what is projected to be a $441 million shortfall in the state’s budget for the year that ends June 30.

The governor told me the same thing two weeks ago, although he said he was open to looking at closing some tax credits and tax incentives. That openness didn’t extend to incentives the state offers the film industry, however.

“We need to take a look at them, to look to see if some may have outlived their usefulness,” Richardson told me then.

At the time Richardson didn’t specifically name any tax credits or incentives that he’d be open to closing.

Nash quotes a statement from Christine Trujillo in today’s story in which the AFT-NM president says “Personal income tax cuts for the wealthiest New Mexicans, (those with incomes of $295k or more) capital gains tax cuts, and tax loopholes for big out-of-state corporations are costing the state $1 billion a year in education funding. The governor must leave New Mexico with a better legacy and insist the state rid itself of tax breaks which have outgrown their usefulness. Additional tax revenues must be invested in schoolchildren,”

Richardson has said he does not want to cut public schools spending to make up this year’s budget shortfall, a goal some top lawmakers have questioned.

Nash reminds us that the teachers’ organization isn’t the first, and likely won’t be the last, group to call for the repeal of the 2003 tax cuts.

She writes:

New Mexico Voices for Children is among the groups calling for reversal of the tax cuts.

The group’s research director, Gerry Bradley, said those who make the most can most afford to sacrifice.

“Our lowest paid people are being asked, essentially, to make the largest sacrifice, while those who could most afford to sacrifice aren’t being asked to give up anything,” Bradley said last month.

In addition, Nash writes, several Democratic state lawmakers also have suggested Richardson make such a change.

Who knows if the move to repeal the tax cuts will gain momentum? We’ve still got a month or more before the special session scheduled to address this year’s budget shortfall is called into action. And politics, like much of life, is a balancing of competing interests.

So the answer given today by an elected official may change tomorrow, if there’s a dramatic change in the dynamics at play. But at this point the governor appears firm in his opposition to repealing the tax cuts. He likely derives some fortitude from the fact that some top lawmakers agree with him that repealing the 2003 income tax cuts may not make the most economic sense during the recession.

So the repeal of the income tax cuts appear unlikely this year. But politics is a strange, unpredictable business. Stay tuned.

The report bolsters the opinion of New Mexico economists I quoted in an earlier story this week about the stimulus dollars. BBER’s Larry Waldman and New Mexico Voices for Children’s Gerry Bradley both gave a strong critique of the usefulness of the state’s ARRA website, saying that the data provided lacked the depth necessary to discern the actual impact of dollars to the state.

Larry Waldman, senior economist at the University of New Mexico’s Bureau of Business and Economic Research, said it’s impossible to know the effect of stimulus dollars at this point given the data provided on the ARRA Web site.

New Mexico Voices for Children economist Gerry Bradley concurred, saying that while he was “astonished” that anyone would think Albuquerque isn’t benefiting from the stimulus dollars he isn’t surprised given the state of the Web site…

The problem with knowing the impact of stimulus on the economy, both he and Waldman said, is the lack of further detail about when and on what the money was spent.

The national report by Good Jobs First gives two scores — one for overall information and one for highway projects — meant to evaluate how effective the state level sites are at giving the public information about three things:

The categories of stimulus spending; the distribution of that spending in different parts of the state; and specific projects being carried out by private contractors, including their employment impact.

Using ten factors related to quality and quantity of information, Good Jobs First ranked every state ARRA Web site on a scale of 0-100. The average overall score is an abysmal 28.3, while the average highway reporting score is 37.8.

How does the New Mexico ARRA Web site do?

For overall information — with a score of 30, we’re 19th on the list. For Highway reporting — with a score of 25, we’re 38th on the list.

Former New Mexico Gov. Toney Anaya, who was appointed by Gov. Bill Richardson to head up the state’s ARRA office, was aware of the report when the Independent spoke to him earlier this week about stimulus spending in the state.

He agrees that the Web site could be better, saying his office is committed to making it happen. One problem, he said, is that the federal government didn’t provide funding for state-level oversight of the stimulus dollars, so the state had to cobble his staff together.

“The stimulus funding provided no oversight for the states, so this office is staffed by people sent from other state agencies,” he said. “We’ve had to piece it together. But just this week we entered into an agreement with Los Alamos National Laboratory for a webmaster, who will improve the site starting next week.”

Anaya said the reports provided on New Mexico’s ARRA Web site so far have been pieced together based on the requirements handed down by the federal government, but that they want to make the Web site much more useful for ordinary New Mexicans.

“We’re going to have a much better Web site, the kind from which the average New Mexican can find the data and it’ll mean something to them.”

When asked if economists would find it useful as well, Anaya said economists will most likely still have to “look behind the curtain.”

For every $1 in unemployment benefits paid, the local economy benefits by $1.73, according to a report in the New Mexico Business Weekly. Terri Cole, president of the Greater Albuquerque Chamber of Commerce, acknowledged the “strange, positive impact” of unemployment insurance payments. Rep. Mimi Stewart, D-Albuquerque, explained that it’s an easy way to stimulate the economy because “when you give unemployed people money, they spend every bit of it.”

The state’s unemployment trust fund had nearly $492 million at the end of January, and the state may receive another $39 million in federal stimulus money for unemployment. Apparently, New Mexico qualifies for all the available funds because of recent reforms at the state Legislature that expanded benefits.

Stewart wants to expand them further by increasing the pay-out to unemployed workers from 53.3 percent to 60 percent of their former average weekly wage. The expansion would only last for two years, and would cost the state $26.3 million. But, given the positive effect of unemployment benefits, the broader economic impact would be $45.4 million.

The Greater Albuquerque Chamber of Commerce is opposed to Stewart’s bill, HB 20, because of fear that it would lead to higher taxes on businesses. Another concern is that the fund might be depleted.

But Stewart said HB 20 wouldn’t lead to higher taxes. Instead, she said, some companies might see higher taxes because they’re laying off workers, and therefore their “experience rating” is going up. And Gerry Bradley, research director for New Mexico Voices for Children, said there’s enough in the fund now for at least another year and seven months, not counting additional tax revenues. There were $81 million in tax revenues last year and interest payments into the fund of about $25 million, he told the biz weekly.

HB 20 passed the House unanimously and is now scheduled to be heard in the Senate Corporations Committee.

New Mexico Voices for Children’s Research Director, Gerry Bradley, spoke at length with me about taking classes with Boyle, during our conversation about why New Mexico’s tax code is constructed the way it is. Most of that conversation didn’t make it into the story. But I went looking online for information about the two men and found one page about Franklin Jones on the Web site of the New Mexico Tax Research Institute, which I linked to, but couldn’t find anything about Boyle.

So today I was quite pleased to see Winthrop Quigley highlight Boyle in his Albuquerque Journal Upfront Column. For his column, Quigley interviewed David Abbey — who runs the Legislative Finance Council Staff — about the impact Boyle had on New Mexico’s economists and finance experts:

Abbey said he and a lot of other economists and finance experts learned what public service is supposed to be from Gerry Boyle, either in the economics classroom or working with him in state government. Boyle’s disciples, Abbey said, learned to serve with integrity. They learned to respect elected officials as the people’s representatives. They remembered always that their job was to offer their best advice and their best efforts to accomplish the people’s will.

Boyle influenced a who’s who of policy movers and shakers, most of whom most New Mexicans wouldn’t know but who have made state government what it is, sometimes for worse but mostly for better.

Back to the page about Franklin Jones, the Tax Research Institute gives him credit for writing the tax code. Not to mention, they say, he brought professionalism to tax administration in the state — which was “plagued by political patronage.”

He reformed New Mexico’s tax code, creating the structure still in use, and he transformed tax administration, bringing professionalism to a tax commission plagued by political patronage.

The accomplishments of Franklin Jones are nothing short of extraordinary. He commanded the respect of legislators, even those who disagreed with him, through his honesty and expertise. He crafted a broad revision of state taxes and skillfully navigated the political barriers common to such an enterprise. Even today, his name is invoked whenever there is a need to call to mind an example of civic duty, vigorously and gracefully performed.

I couldn’t help but think of Gerry Bradley’s comments when I read both of these pieces. And I’m glad to have a link for Boyle now in the tax expenditure article I wrote.

Gov. Bill Richardson vetoed an obscure little tax budget bill in 2007 — and it’s a veto that may come back to haunt Santa Fe in a big way.

As next month’s legislative session approaches, so do some very hard decisions, as legislators face a looming budget deficit that by all accounts is going to be massive. But now Richardson is leaving just as the financial picture is heading south, and his veto prevents lawmakers from having a clearer picture of their options for finding revenue to keep programs funded.

The bill that Richardson vetoed called for the state’s Taxation and Revenue Department to issue an annual list of all the tax revenue that is not collected due to the many tax credits, deductions and exemptions that are on New Mexico’s books.

The total of these so-called “tax expenditures” exceeds $5 billion, according to a report by New Mexico Voices for Children. That’s almost equal to the state’s entire general fund.

Tax credits, deductions and exemptions are familiar to all of us. Just about everyone uses them come tax time to reduce the amount of taxes we owe. The legislation Richardson wouldn’t sign would have itemized all of these, estimating how much tax revenue forgone it represents that year and noting who benefits from it.

Norton Francis, chief economist for the Legislative Finance Committee, said the intent of the bill was to add transparency to the tax system.

“It would be valuable to remind legislators about individual [tax expenditure] items — in terms of how much they cost, what the intent of each is and who benefits. And had the bill been passed two years ago, we’d have it now that we are in this downturn,” Francis told the Independent.

“It would allow us to make more informed decisions about various segments of tax policy that might need revisiting.”

Many other states have such transparent tax budgets. The one maintained on this Minnesota state Web site shows that it’s a pretty straightforward presentation. Each exemption or deduction is listed with the date it was implemented, a description and the estimated tax revenue it represents.

So why shouldn’t New Mexico make such a budget?

Jim Nunns, director of New Mexico’s Taxation and Revenue Department, told the Independent that producing a budget showing all the tax-relief items is not as cut-and-dried as it may sound.

First, he said, these tax breaks reflect the deliberate use of the tax base to achieve certain policy goals — like making charitable donations tax-deductible to encourage giving.

“It’s not that you aren’t collecting money, it’s like you’re collecting it and spending it at once,” he said. “The government is allowing people or businesses to exempt or deduct certain revenue from taxation in order to achieve a certain public-policy outcome.”

But an annual budget that includes everything would be misleading, he said, because not all of these tax breaks are targeted at achieving a special policy outcome — rather, some are there to correct the flawed structure of the tax code.

For instance, deductions for business purchases of items used in the production process are on the books because not including them would lead to double taxation, Nunns said.

Nunns hired a consultant in 2007 to examine each area of the tax base and determine what he calls the “correct” tax base so that the “actual” tax expenditures can be identified. Presumably, this means some of the exemptions and deductions would be listed on a tax-expenditure budget, should one be made, but others wouldn’t.

Tom Clifford, research director at the New Mexico Tax Research Institute, agrees with Nunns that such budgets can be misleading. Without the large set of breaks for business transactions, he said, double taxation would be common: once when a product is purchased for use in production, and again on the income from the sale of the final product.

These complications are a function of how New Mexico’s tax code was designed, he said. Some states, he explained, have “additive” systems, which start small and then add items to the code.

“But New Mexico taxes everything,” Clifford said, “then subtracts its way to a proper tax code. This makes it necessary to have a large set of exemptions and deductions that shouldn’t be thought of as tax expenditures meant to achieve public-policy goals.”

But Gerry Bradley, an economist and research director for Voices for Children, thinks New Mexico’s tax code works well for the state. And, he said Nunns and his consultant, Thomas Pogue, are essentially redesigning New Mexico’s tax code in their research into the “correct” tax base.

“The reports they are producing are filled with the word ‘should’ — this means that they are designing a new tax code, rather than producing a straightforward tax-expenditure budget,” he said.

“Our tax code was created in the early 1970s by Franklin Jones and Gerry Boyle, who were hardly radicals. It’s a strong tax code and a good foundation for our general fund. And it is our tax code. This makes me the conservative one on this topic.”

Bradley said there’s no reason the Legislature and the public shouldn’t have the benefit of a tax-expenditure budget that shows all the deviations from the tax base.

Norton Francis seems to agree, although he sees the value in the studies being undertaken by the Taxation and Revenue Department.

“They’re doing fairly academic research about how a tax code should ideally be structured, which makes sense. But it could take a long time at this rate,” he said.

“I think a simple enumeration of the current expenditures would be a good first step. Then people can decide for themselves what is important or not.”

Contact the reporter by sending an email to mchildress@newmexicoindependent.com.

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