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Tax reform, $1.2 billion oil and gas windfall discussed

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State Sen. John Arthur Smith, chair of the Senate Finance Committee, addresses New Mexico Municipal League (NMML) conference attendees in the planetarium on Wednesday afternoon. Also pictured are Rep. George Doge, vice chair of the House Appropriations and Finance Committee, and David Abbey, director of the Legislative Finance Committee. (Alison Penn Photo)

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Lawmaker: Local, state governments must participate in internet sales tax

During the 61st annual New Mexico Municipal League (NMML) conference, held Tuesday through Friday last week in Roswell, officials from all over the state gathered to set policy for the upcoming legislative session in December. Tax reform, a $1.2 billion oil and gas surplus, internet sales tax, and funding for education were buzzwords among officials and speakers.

David Izraelevitz, president-elect of the New Mexico Municipal League and County Councilor Chair of Los Alamos, delivers a speech as Mayor Dennis Kintigh listens. (Alison Penn Photo)

On Wednesday afternoon, Sen. John Arthur Smith (D-District 35), chair of the senate finance committee; Rep. George Doge, (D-District 63) vice chair of the house appropriations and finance committee; and David Abbey, director of the legislative finance committee, addressed many of these issues during a tax and revenue panel discussion.

A June U.S. Supreme Court ruling allowed states to require online retailers to collect sales tax even in areas where they don’t have a physical presence.

In the conference’s general closing session on Thursday, NMML President-Elect David Izraelevitz reminded city officials of the ruling, calling a bill for taxing remote sales, “a practical way to collect money.”

Taxes

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Izraelevitz said Gov. Susanna Martinez made it clear she would not sign a bill increasing taxes — but approved of the state receiving taxes from Amazon, including a 1.225 percent share allocated for municipalities.

He also said the Legislature passed significant increases in gasoline taxes, including a five-cent increase for local governments. Martinez vetoed both the tax on remote transactions — separate from the Amazon discussion — and the gasoline tax bills.

Smith said gross receipts tax (GRT) is more obsolete as retail in rural areas moves to more urban sites. He said windfall funds will be an encouragement for tax reform because the state needs a more stable revenue stream. Smith also said counties are suffering from a lack of GRT, which will be a “much larger problem in the future years for municipal communities.”

Doge said rural communities are suffering and GRT has flatlined.

Smith said internet tax might be a larger windfall to rural communities because of the decrease in local retail and GRT. As of now, Smith said local governments are rallying against GRT as they watch the deterioration of their infrastructure, when the funds received haven’t improved over the past 20 years.

Abbey said the GRT “is weird,” and a strange system is not positive for economic development.

Smith said local governments must be participants in receiving internet sales tax funds, not just the state. He said changing the law will take time and encouraged municipal leaders to not immediately write to the New Mexico Taxation and Revenue Department demanding to receive their fair share.

Smith asked the local officials at the conference to help lead the charge on tax reform — municipalities cannot solely rely on GRT, he said.

Doge said he believes a middle ground on tax reform can be found to do what is right for counties, cities and villages.

Izraelevitz said local governments have been “knocking heads with the tax and revenue department” about GRT distribution.

“We believe that over relatively over a short period of time, TRD (the tax and revenue department) has withheld tens of millions of dollars that belong to our municipalities,” Izraelevitz said.

He said five municipalities have begun court actions to require the department to restore these finances. He said the process, already ongoing for three years, has been slow, and has “quite a ways to go.”

Oil and gas windfall

Regarding $1.2 billion from the boom in oil prices, Izraelevitz said the state is “turning a page for the first time in many years” and it is a “fantastic turnaround” compared to the recession. He said the contribution of the oil and gas industry is fundamental to state and local governments’ economy and infrastructure.

Abbey said it has been “exceedingly difficult” for the state over the past 10 years, due to the volatility of revenues. However, he said this year the windfall represents a 20 percent increase in new revenue, compared to past years when negative state revenue numbers were recorded. At this time, he said the state is the third-biggest oil producer in the nation.

“It is a new day in our state with a new state administration, enhanced economic prospects, and in your leadership,” Izraelevitz said. “It is a time of renewed cities, towns and villages. It is up to us to develop a common vision and mutual support that will serve the citizens that we owe our jobs to. So let’s not forget, that among our 106 municipalities, 680 elected officials, almost 17,000 municipal employees, and let’s not forget with a little extra money anything is possible.”

Doge said if one added up all the money he has seen during his eight years in the legislature, it does not come close to the $1.2 billion. He said it worries him that people may want to appropriate these funds as recurring money, which can’t be done. He added that he hopes the state will “take care and spend the $1.2 billion very wisely.”

Referring to the 2008 recession, Smith suggested the state should be more cautious with this funding, due to the volatile nature of oil and gas. Smith said 75 to 80 percent of the “new money” directly or indirectly originates from the oil and gas industry.

Smith said keeping the food tax off the table is not sustainable since it is projected over the next 15 years to grow to over $1 billion in lost revenue.

“We’ve got the windfall from oil and gas right now, that is not sustainable, but gives us an opportunity to make change,” Smith said of tax reform. “The pushback we are going to be getting is that ‘you’ve got all this money’ — and they’re going to interpret tax reform as tax increase … so we’re back on that rollercoaster.”

State economy

Izraelevitz said the state and municipalities have had “a rough 10 years” with serious deficits, layoffs, budget cuts — some years reaching half billion dollars.

According to the Legislative Finance Committee website, the following four areas make up 78 percent of the general fund budget: 43 percent for public schools, 15 percent for higher education, 13 percent for Medicaid and 7 percent for public safety. Smith said of the state’s $6 billion-plus budget, one-third (indirectly and directly) comes from oil and gas.

Smith said the state also keeps reserves of 10 percent (twice to what most states keep) — $600 million. He argued this amount was not adequate because bond companies recommend keeping 17 to 20 percent in the state’s reserves. Doge said he agreed with keeping 20 percent.

“The local governments have their own concerns and their own initiatives trying to make the system work for their citizens,” Smith said. “New Mexico is somewhat unique in education funding in the sense that virtually 99.9 percent of operation money for education comes from the state government. It’s your money, but we flow it through state government.”

During the opening session on Wednesday, Mayor Dennis Kintigh addressed the “community leaders who are striving to make this state a better place” and welcomed them to the “rapidly growing and changing” gateway to the southeast.

He compared micromanagement and control of the state to a “ball and chain” sometimes holding back municipalities. He urged municipal officials to voice concerns and hold their legislators accountable.

“We are doing the everyday job of serving the citizens of this state — every day,” Kintigh said. “Day in, day out, they turn the faucet — the water comes on. That did not come from the state. It comes from you guys. Their trash gets picked up. It didn’t come from the state. It comes from you guys. Somebody dials 911, in rare cases it may be the state police, but 99 percent of time it’s your police officers. They need to remember this and they are accountable to all the citizens, so I call upon you — let’s let them know they need to do their job.”

City/RISD reporter Alison Penn can be reached at 575-622-7710, ext. 205, or at reporter04@rdrnews.com.