State tax breaks will affect city’s budget

Berry: ‘This is part of a bigger picture’

It’s not just the sluggish economy that’s squeezing the budget at City Hall.

Tax breaks approved at the state level are also limiting how much Albuquerque can spend next year.

In budget hearings this spring, city councilors have already heard about one such loss in revenue: $4.4 million from a 2012 legislative bill that addressed “tax pyramiding” on contractors and manufacturers.

An extra $4.4 million would be more than enough to either double the raise proposed for city employees next year or double the extra money earmarked for special capital projects in “ABQ: The Plan.”

But Mayor Richard Berry said the hit in revenue is simply a result of smarter tax policies that will ultimately help create jobs in Albuquerque.

“This is part of a bigger picture to make New Mexico more competitive from a tax standpoint,” Berry said.

The city government can still balance its $481 million operating budget for next year and afford to boost its reserves, he said, even after the new tax breaks.

The 2012 tax change allows contractors and manufacturers to deduct certain items from their gross receipts taxes. Without it, supporters said, companies face a phenomenon called “tax pyramiding,” akin to having to pay a tax on a tax.

Other changes at the state level will play a role in city budgets down the road. In 2016, for example, the state will start phasing out its “hold harmless” subsidies to local governments.

That subsidy, aiming at helping local governments survive the 2004 elimination of gross-receipts taxes on food and medicine, totaled nearly $37 million for Albuquerque in 2011.

City Councilor Trudy Jones said the tax-pyramiding bill should boost the economy and offset the estimated loss of revenue. But the eventual elimination of “hold harm-

less” funding “will have a detrimental effect on the city,” she said.

Councilor Rey Garduño said he isn’t convinced the tax breaks will generate the benefits supporters hope for. Pressure on the city budget from state decisions could eventually lead to an increase in the local tax rate, he said.

“Sometimes a tax cut sounds like a good idea but has tremendous consequences down the line,” he said.

As for the budget now under debate, an extra $4.4 million would certainly come in handy. There are no plans for layoffs, but the mayor’s budget calls for cutting 40 vacant jobs from the payroll, a savings of $2.1 million.

About $3 million is set aside for pay increases, enough to provide an across-the-board raise of 1 percent, the first such raise during Berry’s tenure. The budget also has about $3 million in one-time funding for special capital projects outlined in the mayor’s “ABQ: The Plan” initiative.