Focus, governor: It’s the budget, and that’s all

Once more, Gov. Susana Martinez is displaying an unwillingness to focus on what matters when it comes to governing. The financial crisis in the state — one entirely of her making — is that the $6.1 billion budget for the next fiscal year is unbalanced. Rather than take the budget passed by the Legislature and cut judiciously at the end of the long legislative session, Martinez chose to whack the entire higher education and legislative budgets. Everything. At once.

Martinez then took the bill designed to bring in more money — the state needed about $150 million in new spending to balance the legislative budget proposal — and vetoed all of it, even proposals she had said she would support. Thus, the current crisis, with colleges and universities unable to set tuition rates or pass a budget. The fiscal year, by the way, begins July 1, just two months away.

Rather than call a special session and focus on fixing the mess she made, Martinez still is insisting that a short session offers plenty of time to reform New Mexico’s admittedly antiquated gross receipts taxation system. We have said in the past that, yes, tax reform is necessary. But a special session (Martinez had said she would like to do it in a day) will not offer the right setting for reform.

The concept — solid in principle — is to eliminate exemptions while lowering the base rate. Reformers also want to eliminate business-to-business taxes on goods and services, a concept known as tax pyramiding. But state economists estimate that flattening of taxes will cost the general fund some $300 million, and it’s not clear that broadening the tax base (by taxing nonprofits and eliminating other exemptions) will raise all of the necessary cash.

New Mexico is staying solvent — but barely. A miscalculation on GRT reform could send the state spiraling into debt. With 100 or so exemptions to consider, lawmakers need to take care (newspapers are among products exempted; we don’t mind losing this valuable exemption as a necessary part of tax reform). It’s also unclear whether removing the exemptions will bring in enough new dollars to truly flatten the GRT — without a true rate drop, the exercise is merely shifting dollars around.

Pushing for reform without adequate time to explore ramifications is reckless. Were tax reform so urgent, as Democratic Sen. John Arthur Smith rightly points out, perhaps the governor would have addressed it in January, rather than letting the session run its course.

The broad tax-reform bill that serves as the foundation of new policy was introduced by Rep. Jason Harper, R-Rio Rancho, but not until the session was halfway through. His House Bill 412 weighed in at more than 300 pages and passed the House unanimously after two full days of hearings. Only in the Senate did lawmakers face tough questions from the nonprofit groups, local governments and schools who might pay more as a result of this “reform.” While still supporting some reform, senators wanted to ensure the state would have enough money coming in so that a true lowering of gross receipts taxes could occur.

This “crisis” is a ploy to pass half-baked reform, the kind likely to cause more problems than it solves. For whatever reason, the governor is in crisis mode right now. She said last week that the state is running out of cash, a claim contradicted by legislators, economists and state budget experts. In truth, revenue estimates for the state have improved, and that’s after lawmakers spent the first part of the 2017 session shoring up this year’s budget.

None other than David Abbey, director of the Legislative Finance Committee, said last week that “liquidity is not an issue.” The state has enough cash and revenue appears to be on the increase; what New Mexico needs are cash reserves (something the vetoed revenue bill passed by the House and Senate addressed).

The battle between the governor and the Democratic leaders of the House and Senate is so contentious that Martinez and lawmakers go before the Supreme Court next month to debate the legality of her vetoes. We still don’t know if the special session to balance the budget will occur before or after that argument before the court.

In the meantime, the state of New Mexico continues to warn workers that up to five furlough days are possible before the end of this fiscal year on June 30. This, despite the report from the LFC that New Mexico’s general fund is projected to close out the current fiscal year at $54 million, or 1 percent, above expectations. That’s without including some $16 million from the Human Services Department that should revert back to the general fund.

It’s hard to escape the conclusion, looking at those numbers, that Martinez is callously using state workers as a bargaining chip. Like so many New Mexico families, employees live paycheck to paycheck and likely can’t afford to lose what amounts to a week’s pay over the next two months. This threat is cruel — and apparently unnecessary. So is the entire budget “crisis.”

Fix the budget, lawmakers. Do that one job, do it well and for the sake of this state, do it soon. Leave the state workers alone to do their jobs without threats of pay cuts. Then, tackle tax reform at a different time and place. Focus, governor. You can do this.