DALLAS — The New Mexico Legislature has approved a $5.6 billion budget in a special session that balances spending with the largest tax increase in more than 20 years while cutting spending by $100 million.
The session also authorized bond issues that failed to win approval in the regular session in January.
In Gov. Bill Richardson’s last year in office, lawmakers answered his call by approving taxes to raise more than $200 million. Included in the tax hike is a one-eighth-cent increase in the state’s 5% gross receipts tax on goods and services. The budget bill also reinstates a 2% tax on food. Taxes on cigarettes were set to soar 75 cents per pack under a Senate provision under consideration yesterday.
The special session, which opened Monday, is expected to end today.
Raising taxes and cutting education spending proved a tough challenge in an election year. The Republican minority opposed the tax increases, but the measure passed the Senate on a 26-to-14 vote and a tally of 38 to 28 in the House.
House Speaker Ben Luján, D-Santa Fe, said tax increases were necessary to prevent damaging cuts in government services.
Other measures in Richardson’s call included the issuance of severance tax and general obligation bonds for state infrastructure.
Rep. Al Park, D-Albuquerque, said he reluctantly voted for the unpopular food tax as a compromise to resolve budget problems. Legislators in neighboring Arizona, whose budget problems are more severe, recently approved a food tax as a way to reduce its shortfall.
Not since 1986 has the state approved such a large tax increase, according to the Legislative Budget Council. In that year, gross receipts and other taxes were raised by $150 million — representing nearly 11% of the state budget then. The proposed tax increases of more than $230 million in the new budget equal more than 4% of state outlays. The new taxes come on top of nearly $16 million in tax increases approved during the January regular session.
New Mexico’s general obligation ratings of AA from Standard & Poor’s and Fitch Ratings and Aa2 from Moody’s Investors Service remain stable, despite the budget crunch.
“The state’s capital management process allocates limited bonding capacity effectively, thereby reducing pressure to fully leverage pledged revenues, and debt management policies are conservative,” according to Moody’s analysis in advance of last year’s sale of severance tax bonds.
“The stable outlook reflects our expectation that despite the state’s forecast of declining revenues and additional bond plans, severance tax collections will continue to provide strong debt service coverage in the bonds’ relatively short 11-year life,” Standard & Poor’s analysts noted. “The outlook also reflects our expectation that natural gas and oil reserves will continue to be replenished to maintain sufficient production over the bonds’ life.”