New Mexico Budget Situation
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New Mexico Budget Situation

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This is an excellent presentation on the 2011 budget situation in New Mexico.

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New Mexico Budget Situation Presentation Transcript

  • 1. New M i ’ Economic and Fi l N Mexico’s E i d FiscalEnvironment, Recent Tax Law Changes, & Recent Dialogue, Likelihood, and Expected New T P E d N Tax Proposals lPresented 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 justifiedN.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 TaxN.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 TaxN.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 questionN.M. Tax Research Institute
  • 7. Economic Environment 7 Source: December 2010 Consensus Revenue ForecastN.M. Tax Research Institute
  • 8. Economic Environment 8 Source: December 2010 Consensus Revenue ForecastN.M. Tax Research Institute
  • 9. Economic Environment 9 Source: December 2010 Consensus Revenue ForecastN.M. Tax Research Institute
  • 10. Economic Environment 10 Source: December 2010 Consensus Revenue ForecastN.M. Tax Research Institute
  • 11. Economic Environment 11 Source: December 2010 Consensus Revenue ForecastN.M. Tax Research Institute
  • 12. Economic Environment 12 Source: December 2010 Consensus Revenue ForecastN.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 TaxN.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 stableN.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 2010N.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. taxN.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 businessN.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 vulnerableN.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? hN.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? hN.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 fundN.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 taxesN.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 UNMHN.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 creditsN.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 2010N.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 futureN.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 addressedN.M. Tax Research Institute