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New M i ’ Economic and Fi l
  N Mexico’s E          i    d Fiscal
Environment, Recent Tax Law Changes,
                 &
   Recent Dialogue, Likelihood, and
     Expected New T P
     E      d N Tax Proposals   l
Presented to the Association of Counties’ Board of Directors
                   January 18, 2011
     RICHARD L. ANKLAM, PRESIDENT & EXECUTIVE
                     DIRECTOR
NMTRI Principles of Good Tax Policy
                                                  2

       N.M. Tax Research Institute is a non-profit, non-partisan member-
                                            p f ,       p
      supported organization dedicated to advancing the following principles
                       of good tax policy in New Mexico:
      Adequacy
          Revenues
          Re enues should be sufficient to fund needed services
                                                       ser ices
      Efficiency
          Interference with the private economy should be minimized
      Equity
       q y
          Taxpayers should be treated fairly
      Simplicity
          Laws, regulations, forms and procedures should be as simple as possible
      Comprehensiveness
      C     h   i
          All taxes should be considered when evaluating the system
      Accountability
          Exceptions should be rare and should be carefully evaluated and justified


N.M. Tax Research Institute
Economic Environment
                                               3


                FY 2007 State Tax Revenues




                      Gross Receipts Tax 35%       Insurance Premiums Tax 2%
                      Other Taxes 5%               Personal Income Tax 30%
                      Property Taxes 1%            Severance Taxes 16%
                      Tobacco Taxes 1%             Corporate Income Tax 5%
                      Fuel Taxes 5%

N.M. Tax Research Institute
Economic Environment
                                                 4


              FY 2007 New Mexico
              Municipal Tax Revenues




                        Gross Receipts Tax 80%       Property Tax 12%

                        Cigarette Tax 1%             Gasoline Tax 1%

                        Lodgers T 1%
                        L d     Tax                  Franchise T 3%
                                                     F    hi Tax


N.M. Tax Research Institute
Economic Environment
                                                   5


              FY 2007 New Mexico
              County Tax Revenues




                     Property Tax 55%                  Cigarette Tax 0%

                     Gasoline Tax 1%                   Lodgers Tax 0%

                     Motor Vehicle Excise Tax 1%       Franchise Tax 5%

                     Gross Receipts T 43%
                     G     R   i t Tax


N.M. Tax Research Institute
Economic Environment
                                       6

       REVENUE FOREAST - NOT PRETTY
           Shortfall could still get worse (although recent
           forecast improved)
           Federal stimulus money going away
           Governor released worst numbers than the
           “consensus”
             Differing assumptions (i.e. Guv didn’t assume
             continuation of austerity measures)
             Medicaid is biggest question

N.M. Tax Research Institute
Economic Environment
                                                      7




           Source: December 2010 Consensus Revenue Forecast

N.M. Tax Research Institute
Economic Environment
                                                       8




    Source: December 2010 Consensus Revenue Forecast
N.M. Tax Research Institute
Economic Environment
                                                       9




    Source: December 2010 Consensus Revenue Forecast
N.M. Tax Research Institute
Economic Environment
                                                       10




    Source: December 2010 Consensus Revenue Forecast

N.M. Tax Research Institute
Economic Environment
                                                       11




    Source: December 2010 Consensus Revenue Forecast

N.M. Tax Research Institute
Economic Environment
                                                       12




    Source: December 2010 Consensus Revenue Forecast

N.M. Tax Research Institute
Economic Environment
                                                           13

                                 Annual Growth Rates by Revenue
     30.0%

    20.0%

     10.0%
     10 0%
                                                                          Gross receipts tax
      0.0%
                                                                          Personal income tax
    -10.0%                                                                Corporate income tax
    -20.0%                                                                Energy-related revenues

    -30.0%

    -40.0%
     4
                  FY10           FY11           FY12        FY13   FY14
           Source: July 2010 Consensus Revenue forecast.

           •All revenues fell in FY10, O&G revenue fell sharply
           •Strong recovery expected for CIT O&G
            Strong                       CIT,
           •Moderate growth in PIT, GRT, Other Sales Tax
N.M. Tax Research Institute
Economic Environment
                                                                     14
                                                   Oil & Gas Production Trends
                          110.00%
                                %

                          105.00%

                          100.00%

                          95.00%
            2000 = 100%




                          90.00%

                          85.00%

                          80.00%

                          75.00%

                          70.00%

                          65.00%

                          60.00%
                          60 00%
                                0



                                         1



                                                  2



                                                           3



                                                                    4



                                                                              5



                                                                                       6



                                                                                                7



                                                                                                         8



                                                                                                                  9
                                 0



                                          0



                                                   0



                                                            0



                                                                     0



                                                                               0



                                                                                        0



                                                                                                 0



                                                                                                          0



                                                                                                                   0
                              n-



                                       n-



                                                n-



                                                         n-



                                                                  n-



                                                                            n-



                                                                                     n-



                                                                                              n-



                                                                                                       n-



                                                                                                                n-
                            Ju



                                     Ju



                                              Ju



                                                       Ju



                                                                Ju



                                                                          Ju



                                                                                   Ju



                                                                                            Ju



                                                                                                     Ju



                                                                                                              Ju
                             Source: ONGARD system
                                     •Gas production decline accelerated in the last 2 years
                                      Gas prod ction                                    ears
                                     •Partly due to more liquids processing
                                     •Oil production appears more stable
N.M. Tax Research Institute
Economic Environment- Rate Growth and
                         Pyramiding
                                                          15

        8.5%


        8.0%


                                                                                                    Albuquerque
         7.5%
                                                                                                    Las Cruces
                                                                                                    Farmington
        7.0%
                                                                                                    Santa Fe
                                                                                                    Rio Rancho
        6.5%
                                                                                                    Roswell
                                                                                                    Alamagordo
        6.0%                                                                                        Clovis
                                                                                                    Hobbs
        5.5%


        5.0%
                1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010




N.M. Tax Research Institute
Economic Environment- Rate Growth and
                         Pyramiding
                                    16

   What is pyramiding?
       Pyramiding is when a general consumption or transaction tax
       (like a sales tax or the NM gross receipts tax) is charged on
       business inputs (business to business sales) and becomes
                         (business-to-business
       embedded as part of the cost of the ultimate goods or services
       sold to the consumer.
       GRT is also regressive (hit’s poorer households harder relative
                                (hit s
       to income
   State, muni’s, counties and others in competition for
   tax base
       Counties increasingly dependent on GRT – some now
       receiving more revenue from GRT than property tax.
                                                     tax

N.M. Tax Research Institute
Political Environment
                                        17


     Broadening discussion of budget cuts and tax
     increases
     Shortfall too lengthy for “kick the can” strategies
     alone
     Social advocacy groups, religious groups and unions
     calling for more business and income taxes, less
                                             taxes
     budget cuts
     Business advocacy and others calling for g
                       y                   g    greater
     focus on gov’t spending reductions and no tax
     increases targeting business

N.M. Tax Research Institute
Political Environment
                                        18


   Most agree cuts are still necessary
   Many feel tax increases may be necessary or
   inevitable
   Governor Martinez and her opponent has promised
   to not raise taxes or cut education OR Medicaid
   (NOT GOING TO WORK OUT THAT WAY)
   Debate: If taxes are to be raised, which taxes and
   how much? (similar questions on expenditure side)
   h        h? ( i il         ti             dit    id )



N.M. Tax Research Institute
Tax Policy Issues
                                      19


      Taxes are necessary in that they pay for public
      services, but:
          Taxes can cause economic distortions, inefficiencies, and
          inequities
          i     ii
          Economic implications of different tax increase proposals
          vary
             y
          The state needs to minimize negative impact of increased
          taxes on job creation as well as impacts on the most
          vulnerable




N.M. Tax Research Institute
Tax Proposals
                                    20


   Include most significant tax programs
   Are often “retreads” of previous proposals
   Don t
   Don’t represent the only options
       Endless options/”variations on a theme” possible
   Some options from blue ribbon tax reform
   commission and Guv’s budget balancing committee
   Include compliance enhancement p p
                 p                    proposals that
   don’t “raise taxes”
   Use terms like “loophole” to avoid “increasing taxes”

N.M. Tax Research Institute
Passed Tax Proposals – Regular Session 2010
                                21


   Tax Credits and Other Measures
       Las Cruces Tax Increment Project (HB 112)
       Transport of Dairy Waste for Gas Tax Credit (HB 171)
       Business Retention Gross Tax & Gaming Tax (HB 203)
       Withholding Tax Changes (PTE/O&G) (HB 120)
       Solar & Wind Energy Equipment Gross Receipts (HB
       261)
       Economic D l
       E       i Development T I
                             t Tax Incentive Ch
                                         ti Changes (SB 47) )
       Affordable Housing Tax Credit Use & Vouchers (SB 144)
       County Gross Receipts for Certain Projects (SB 162)

N.M. Tax Research Institute
Passed Tax Proposals – SS 2010
                                 22


   Senate Finance Committee Substitute for Senate Bill 10,
   12 & 13 – non-vetoed portions:
   increased the statewide gross receipts and compensating tax
   rates by one-eighth p
                  g       percent ( / 7/ / ),
                                  (a/o 7/1/10),
   required the “add-back” of state income and sales taxes itemized
   and deducted on federal returns for state income tax purposes
   ( /
   (a/o tax year 2010), and
            y          ),
   closed a “hole” in the compensating tax.
   VETOED - food and LICTR Related Provisions
   The total general fund revenue generated by the bills is
   approximately $137.5 million in FY11, and $122.5 million in FY12
   post veto (previously $200 million).


N.M. Tax Research Institute
Passed Tax Proposals – SS 2010
                               23


   House Taxation and Revenue Committee
   Substitute for House Bill 3 - non-vetoed portions:
   Increased cigarette tax by 75 cents
   Changes distributions to hold some beneficiaries harmless
   VETOED – existing distributions to local governments and
   new distributions
   ne distrib tions to the PED for earl childhood ed cation
                                     early           education
   and CYFD for early childhood programs
   The total general fund revenue g
             g                     generated by the bill is
                                              y
   approximately $33.9 million post veto, (previously $22.5
   million).


N.M. Tax Research Institute
Tax Proposals-Personal Income Tax
                                        24


      “Roll Back Richardson Tax Cuts” – PIT
       Roll                     Cuts
          We raised personal income taxes this year already
      Tax rate “surcharge” at varying income levels
                       g         y g
          NM rates similar to surrounding states currently
      Reduce capital gain tax preference (PIT)
          NM more generous than most states assuming current rate
          structure
      Impose mandatory combined reporting
        p            y            p     g
          New Mexico has long allowed three options for reporting
          corporate income as an economic development incentive. NM
          currently imposes highest rates and least favorable reporting rules
                   y p         g                             b    p      g
          relative to surrounding states, (except for filing group elections)
N.M. Tax Research Institute
Tax Proposals - Gross Receipts Tax
                                     25


      Increase GRT rates
          Already increased GRT and Compensating Tax by 1/8%
          Negative Consequences to business and poor alike
      Eliminate or alter “hold harmless” provisions
      Repeal or alter “food tax” deduction
         p
          Candy & soda
          Provision passed and vetoed this year
      Other?
        h



N.M. Tax Research Institute
Tax Proposals - Gross Receipts Tax
                                     26


      Increase GRT rates
          Already increased GRT and Compensating Tax by 1/8%
          Negative Consequences to business and poor alike
      Eliminate or alter “hold harmless” provisions
      Repeal or alter “food tax” deduction
         p
          Candy & soda
          Provision passed and vetoed this year
      Other?
        h



N.M. Tax Research Institute
Other Taxes
                                      27


      Oil and gas taxes
          “Equalize” oil and gas tax rates
          Progressive rate structure
      Impose higher “sin” taxes
          Alcohol?
          Already i d i
          Al d raised cigarettes 75 cents/pack
                                         /   k
      Increase gasoline taxes
          Tax currently goes to road fund




N.M. Tax Research Institute
Other Taxes
                                    28


      Motor hi l
      M t vehicle excise t
                     i tax
          NM low at 3% with little ED implication
          Turnover tax so rate should be less than GRT
          Sector still in downturn.
      Insurance premiums tax
          Increase health premiums 1%
              Many health services now out of GRT base
              Retaliatory taxes


N.M. Tax Research Institute
Other Taxes – Property Tax
                                         29

      Valuation Limitation
          Populist initiative
          Unintended consequences – “Tax Lightning”
            2 District Court taxpayer wins (
                                p y        (Bernalillo County) on appeal
                                                              y)   pp
               Decision on appeal not expected soon
            Related issues - multi-family dwelling classification
          “Fixes”
            Good time to fix in downturn;
            Current and correct is best policy, BUT
             Winners and Losers likely result from any “fix”
                                      y               y
            Political Environment odd
               Speaker Lujan appearsinvested in current law
               Not a General Fund issue in the midst of GF budget crisis
      Proposal to reduce mill levy for UNMH
N.M. Tax Research Institute
Business Incentives
                                       30


  • Always scrutinized
  • In total cost under $94M, down from over $120M
  • Many used little and repeal offers little savings
  • Utilized incentives enjoy support
  • New sunsets and clawbacks possible as are caps
                              possible,       caps,
      benefits reduction, and repeal

      Note: Film Credit more costly than all other business
       incentives combined and represent approx. 70% of
       expenditures on business tax credits
N.M. Tax Research Institute
Business Incentives
                                       31


      Film credit
          $76M in 2009; $65M in 2010
      High wage jobs tax credit
          $14M in 2009; $4.6M in 2010
      Technology jobs tax credit
          $6M in 2009; $6M i 2010
              i            in
      Renewable energy production tax credit
          $15M in 2008; 0 in 2009
      Investment credit
          $11M in 2009; $7M in 2010

N.M. Tax Research Institute
Non-Tax Revenue Enhancement Proposals
                                        32



      Varying means of converting capital money to
      general fund operating funds
          Rate swap OGEST with Severance
          “Sponge” bonds
              Trade capital for operating (pork=construction)
      Permanent endowment funds
          Already paying out more than taking in; lost over $1
          billion in the last quarter
          Requires Constitutional Change
          Alternative – Sell Note to P-Funds as “Investment”
              Essentially borrowing money from future
N.M. Tax Research Institute
Summary
                                 33




      Revenue/budget situation uncertain but remains
      bleak
      Taxes increase proposals have been introduced
      Taxes increases of some sort are likely (although
      they may not be called that)
      How you tax matters – do the least harm
        o       a    a e s         e eas a
      Property Tax Lightning may get addressed


N.M. Tax Research Institute

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New Mexico Budget Situation

  • 1. New M i ’ Economic and Fi l N Mexico’s E i d Fiscal Environment, Recent Tax Law Changes, & Recent Dialogue, Likelihood, and Expected New T P E d N Tax Proposals l Presented to the Association of Counties’ Board of Directors January 18, 2011 RICHARD L. ANKLAM, PRESIDENT & EXECUTIVE DIRECTOR
  • 2. NMTRI Principles of Good Tax Policy 2 N.M. Tax Research Institute is a non-profit, non-partisan member- p f , p supported organization dedicated to advancing the following principles of good tax policy in New Mexico: Adequacy Revenues Re enues should be sufficient to fund needed services ser ices Efficiency Interference with the private economy should be minimized Equity q y Taxpayers should be treated fairly Simplicity Laws, regulations, forms and procedures should be as simple as possible Comprehensiveness C h i All taxes should be considered when evaluating the system Accountability Exceptions should be rare and should be carefully evaluated and justified N.M. Tax Research Institute
  • 3. Economic Environment 3 FY 2007 State Tax Revenues Gross Receipts Tax 35% Insurance Premiums Tax 2% Other Taxes 5% Personal Income Tax 30% Property Taxes 1% Severance Taxes 16% Tobacco Taxes 1% Corporate Income Tax 5% Fuel Taxes 5% N.M. Tax Research Institute
  • 4. Economic Environment 4 FY 2007 New Mexico Municipal Tax Revenues Gross Receipts Tax 80% Property Tax 12% Cigarette Tax 1% Gasoline Tax 1% Lodgers T 1% L d Tax Franchise T 3% F hi Tax N.M. Tax Research Institute
  • 5. Economic Environment 5 FY 2007 New Mexico County Tax Revenues Property Tax 55% Cigarette Tax 0% Gasoline Tax 1% Lodgers Tax 0% Motor Vehicle Excise Tax 1% Franchise Tax 5% Gross Receipts T 43% G R i t Tax N.M. Tax Research Institute
  • 6. Economic Environment 6 REVENUE FOREAST - NOT PRETTY Shortfall could still get worse (although recent forecast improved) Federal stimulus money going away Governor released worst numbers than the “consensus” Differing assumptions (i.e. Guv didn’t assume continuation of austerity measures) Medicaid is biggest question N.M. Tax Research Institute
  • 7. Economic Environment 7 Source: December 2010 Consensus Revenue Forecast N.M. Tax Research Institute
  • 8. Economic Environment 8 Source: December 2010 Consensus Revenue Forecast N.M. Tax Research Institute
  • 9. Economic Environment 9 Source: December 2010 Consensus Revenue Forecast N.M. Tax Research Institute
  • 10. Economic Environment 10 Source: December 2010 Consensus Revenue Forecast N.M. Tax Research Institute
  • 11. Economic Environment 11 Source: December 2010 Consensus Revenue Forecast N.M. Tax Research Institute
  • 12. Economic Environment 12 Source: December 2010 Consensus Revenue Forecast N.M. Tax Research Institute
  • 13. Economic Environment 13 Annual Growth Rates by Revenue 30.0% 20.0% 10.0% 10 0% Gross receipts tax 0.0% Personal income tax -10.0% Corporate income tax -20.0% Energy-related revenues -30.0% -40.0% 4 FY10 FY11 FY12 FY13 FY14 Source: July 2010 Consensus Revenue forecast. •All revenues fell in FY10, O&G revenue fell sharply •Strong recovery expected for CIT O&G Strong CIT, •Moderate growth in PIT, GRT, Other Sales Tax N.M. Tax Research Institute
  • 14. Economic Environment 14 Oil & Gas Production Trends 110.00% % 105.00% 100.00% 95.00% 2000 = 100% 90.00% 85.00% 80.00% 75.00% 70.00% 65.00% 60.00% 60 00% 0 1 2 3 4 5 6 7 8 9 0 0 0 0 0 0 0 0 0 0 n- n- n- n- n- n- n- n- n- n- Ju Ju Ju Ju Ju Ju Ju Ju Ju Ju Source: ONGARD system •Gas production decline accelerated in the last 2 years Gas prod ction ears •Partly due to more liquids processing •Oil production appears more stable N.M. Tax Research Institute
  • 15. Economic Environment- Rate Growth and Pyramiding 15 8.5% 8.0% Albuquerque 7.5% Las Cruces Farmington 7.0% Santa Fe Rio Rancho 6.5% Roswell Alamagordo 6.0% Clovis Hobbs 5.5% 5.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 N.M. Tax Research Institute
  • 16. Economic Environment- Rate Growth and Pyramiding 16 What is pyramiding? Pyramiding is when a general consumption or transaction tax (like a sales tax or the NM gross receipts tax) is charged on business inputs (business to business sales) and becomes (business-to-business embedded as part of the cost of the ultimate goods or services sold to the consumer. GRT is also regressive (hit’s poorer households harder relative (hit s to income State, muni’s, counties and others in competition for tax base Counties increasingly dependent on GRT – some now receiving more revenue from GRT than property tax. tax N.M. Tax Research Institute
  • 17. Political Environment 17 Broadening discussion of budget cuts and tax increases Shortfall too lengthy for “kick the can” strategies alone Social advocacy groups, religious groups and unions calling for more business and income taxes, less taxes budget cuts Business advocacy and others calling for g y g greater focus on gov’t spending reductions and no tax increases targeting business N.M. Tax Research Institute
  • 18. Political Environment 18 Most agree cuts are still necessary Many feel tax increases may be necessary or inevitable Governor Martinez and her opponent has promised to not raise taxes or cut education OR Medicaid (NOT GOING TO WORK OUT THAT WAY) Debate: If taxes are to be raised, which taxes and how much? (similar questions on expenditure side) h h? ( i il ti dit id ) N.M. Tax Research Institute
  • 19. Tax Policy Issues 19 Taxes are necessary in that they pay for public services, but: Taxes can cause economic distortions, inefficiencies, and inequities i ii Economic implications of different tax increase proposals vary y The state needs to minimize negative impact of increased taxes on job creation as well as impacts on the most vulnerable N.M. Tax Research Institute
  • 20. Tax Proposals 20 Include most significant tax programs Are often “retreads” of previous proposals Don t Don’t represent the only options Endless options/”variations on a theme” possible Some options from blue ribbon tax reform commission and Guv’s budget balancing committee Include compliance enhancement p p p proposals that don’t “raise taxes” Use terms like “loophole” to avoid “increasing taxes” N.M. Tax Research Institute
  • 21. Passed Tax Proposals – Regular Session 2010 21 Tax Credits and Other Measures Las Cruces Tax Increment Project (HB 112) Transport of Dairy Waste for Gas Tax Credit (HB 171) Business Retention Gross Tax & Gaming Tax (HB 203) Withholding Tax Changes (PTE/O&G) (HB 120) Solar & Wind Energy Equipment Gross Receipts (HB 261) Economic D l E i Development T I t Tax Incentive Ch ti Changes (SB 47) ) Affordable Housing Tax Credit Use & Vouchers (SB 144) County Gross Receipts for Certain Projects (SB 162) N.M. Tax Research Institute
  • 22. Passed Tax Proposals – SS 2010 22 Senate Finance Committee Substitute for Senate Bill 10, 12 & 13 – non-vetoed portions: increased the statewide gross receipts and compensating tax rates by one-eighth p g percent ( / 7/ / ), (a/o 7/1/10), required the “add-back” of state income and sales taxes itemized and deducted on federal returns for state income tax purposes ( / (a/o tax year 2010), and y ), closed a “hole” in the compensating tax. VETOED - food and LICTR Related Provisions The total general fund revenue generated by the bills is approximately $137.5 million in FY11, and $122.5 million in FY12 post veto (previously $200 million). N.M. Tax Research Institute
  • 23. Passed Tax Proposals – SS 2010 23 House Taxation and Revenue Committee Substitute for House Bill 3 - non-vetoed portions: Increased cigarette tax by 75 cents Changes distributions to hold some beneficiaries harmless VETOED – existing distributions to local governments and new distributions ne distrib tions to the PED for earl childhood ed cation early education and CYFD for early childhood programs The total general fund revenue g g generated by the bill is y approximately $33.9 million post veto, (previously $22.5 million). N.M. Tax Research Institute
  • 24. Tax Proposals-Personal Income Tax 24 “Roll Back Richardson Tax Cuts” – PIT Roll Cuts We raised personal income taxes this year already Tax rate “surcharge” at varying income levels g y g NM rates similar to surrounding states currently Reduce capital gain tax preference (PIT) NM more generous than most states assuming current rate structure Impose mandatory combined reporting p y p g New Mexico has long allowed three options for reporting corporate income as an economic development incentive. NM currently imposes highest rates and least favorable reporting rules y p g b p g relative to surrounding states, (except for filing group elections) N.M. Tax Research Institute
  • 25. Tax Proposals - Gross Receipts Tax 25 Increase GRT rates Already increased GRT and Compensating Tax by 1/8% Negative Consequences to business and poor alike Eliminate or alter “hold harmless” provisions Repeal or alter “food tax” deduction p Candy & soda Provision passed and vetoed this year Other? h N.M. Tax Research Institute
  • 26. Tax Proposals - Gross Receipts Tax 26 Increase GRT rates Already increased GRT and Compensating Tax by 1/8% Negative Consequences to business and poor alike Eliminate or alter “hold harmless” provisions Repeal or alter “food tax” deduction p Candy & soda Provision passed and vetoed this year Other? h N.M. Tax Research Institute
  • 27. Other Taxes 27 Oil and gas taxes “Equalize” oil and gas tax rates Progressive rate structure Impose higher “sin” taxes Alcohol? Already i d i Al d raised cigarettes 75 cents/pack / k Increase gasoline taxes Tax currently goes to road fund N.M. Tax Research Institute
  • 28. Other Taxes 28 Motor hi l M t vehicle excise t i tax NM low at 3% with little ED implication Turnover tax so rate should be less than GRT Sector still in downturn. Insurance premiums tax Increase health premiums 1% Many health services now out of GRT base Retaliatory taxes N.M. Tax Research Institute
  • 29. Other Taxes – Property Tax 29 Valuation Limitation Populist initiative Unintended consequences – “Tax Lightning” 2 District Court taxpayer wins ( p y (Bernalillo County) on appeal y) pp Decision on appeal not expected soon Related issues - multi-family dwelling classification “Fixes” Good time to fix in downturn; Current and correct is best policy, BUT Winners and Losers likely result from any “fix” y y Political Environment odd Speaker Lujan appearsinvested in current law Not a General Fund issue in the midst of GF budget crisis Proposal to reduce mill levy for UNMH N.M. Tax Research Institute
  • 30. Business Incentives 30 • Always scrutinized • In total cost under $94M, down from over $120M • Many used little and repeal offers little savings • Utilized incentives enjoy support • New sunsets and clawbacks possible as are caps possible, caps, benefits reduction, and repeal Note: Film Credit more costly than all other business incentives combined and represent approx. 70% of expenditures on business tax credits N.M. Tax Research Institute
  • 31. Business Incentives 31 Film credit $76M in 2009; $65M in 2010 High wage jobs tax credit $14M in 2009; $4.6M in 2010 Technology jobs tax credit $6M in 2009; $6M i 2010 i in Renewable energy production tax credit $15M in 2008; 0 in 2009 Investment credit $11M in 2009; $7M in 2010 N.M. Tax Research Institute
  • 32. Non-Tax Revenue Enhancement Proposals 32 Varying means of converting capital money to general fund operating funds Rate swap OGEST with Severance “Sponge” bonds Trade capital for operating (pork=construction) Permanent endowment funds Already paying out more than taking in; lost over $1 billion in the last quarter Requires Constitutional Change Alternative – Sell Note to P-Funds as “Investment” Essentially borrowing money from future N.M. Tax Research Institute
  • 33. Summary 33 Revenue/budget situation uncertain but remains bleak Taxes increase proposals have been introduced Taxes increases of some sort are likely (although they may not be called that) How you tax matters – do the least harm o a a e s e eas a Property Tax Lightning may get addressed N.M. Tax Research Institute