Governor calls for rebates, tax cuts in her budget

Gov. Michelle Lujan Grisham, shown delivering her second inaugural address on Jan. 1, released a spending plan Tuesday that includes funding to extend New Mexico’s school year and hire more law enforcement officers. (Eddie Moore/Journal)

Copyright © 2023 Albuquerque Journal

SANTA FE – New Mexico state workers and teachers would receive salary increases starting in July and state residents would get another round of tax rebates – of $750 per taxpayer – under a $9.4 billion spending plan unveiled Tuesday by Gov. Michelle Lujan Grisham.

The budget plan released by the governor, who recently began her second term after winning reelection last year, also calls for spending infusions in order to extend the school year in New Mexico by up to 10 days annually, expand a college scholarship program, hire more law enforcement officers statewide and create mobile response teams to deal with homeless individuals.

“Today, we have a historic opportunity for change in the state of New Mexico,” Lujan Grisham said in a statement. “This budget builds upon the immense progress and success of the last four years, continuing to improve the lives of the people of New Mexico by funding programs, policies and initiatives that we know are working.”

In all, the budget plan would tap an unprecedented state revenue windfall to increase year-over-year spending by roughly $1 billion – or about 11.9% – while still setting enough money aside to pay for changes to New Mexico’s tax code.

The changes sought by the governor include reducing the state’s gross receipts tax base rate by an additional 0.25 percentage points – a similar phased-in rate reduction was approved last year – and adjusting brackets in the state’s personal income tax code, top Governor’s Office officials said Tuesday.

They also said the governor does not favor including a trigger mechanism that would automatically undo the tax cuts if projected revenue levels fail to materialize, though such a provision could end up being a part of negotiations with the Legislature.

As for the rebates, the idea of returning a chunk of the state’s oil-fueled revenue surplus to taxpayers has received bipartisan support in recent weeks, though Lujan Grisham criticized her Republican opponent Mark Ronchetti on the campaign trail last year for proposing annual rebates and sweeping tax cuts that her campaign described as imprudent.

The rebates would mark the latest round of financial relief for state residents dealing with the high cost of gas, food and other supplies, as several rounds of rebates approved last year provided up to $1,500 in rebates per household.

The new round would cost an estimated $1 billion and rebates would be provided for all New Mexico taxpayers, not just lower-income ones, under the governor’s plan.

Meanwhile, the tax package favored by the governor could cost the state about $500 million in foregone revenue.

Mountain of money

The spending plan released Tuesday comes as lawmakers are readying for the start of a 60-day legislative session next week.

While a wide range of proposals are expected to be debated, the state’s mountain of money will be at the forefront of many Roundhouse debates.

Specifically, new revenue estimates unveiled in December projected revenue levels will continue to surge through the coming budget year – with roughly $3.6 billion in “new” money projected to be available – due to increased oil production and an uptick in consumer spending.

Some lawmakers have called for spending restraint despite the revenue windfall, saying a drop in oil prices and a possible global recession could mean a big drop in state revenue collections within the next several years.

“I think we better be real, real careful,” Sen. Stuart Ingle, R-Portales, the state’s longest-serving legislator, said in a recent interview. “We just need to make sure we don’t overspend so much that down the road we have to find ways to fund or cut.”

But lawmakers have already come forward with different ideas on how to spend some of the state’s budget surplus, including the building of a high-speed train crisscrossing New Mexico from north to south.

A key legislative panel will release its own spending plan later this week and the two proposals will be studied as lawmakers build a new state budget for the fiscal year that starts in July.

Pay raises

Despite the revenue windfall, many New Mexico state government agencies have dealt with high employee vacancy rates amid the COVID-19 pandemic.

In an attempt to bolster staffing levels, the spending plan released Tuesday by the governor would provide 4% pay raises for all state workers, teachers and other education workers in New Mexico.

Those raises would take effect in July and would cost the state an estimated $202.4 million annually.

In addition, the governor’s plan calls for $100 million to be earmarked to cover the cost of health care premiums for education employees.

Starting teachers in New Mexico paid an average of $4,223 per year on health insurance costs as of August 2021, according to Legislative Finance Committee data.

Teachers unions have lauded the proposal to have the state pay for educators’ health insurance premiums, which would take effect just a year after New Mexico starting teacher pay was increased to $50,000 per year.

“When skyrocketing health care premiums drive talented people out of the profession, everyone loses,” said Bethany Jarrell, the vice president for the National Education Association union in New Mexico.

However, the proposal to cover health insurance premiums would only apply – at least for now – to educators and not other state workers, top Lujan Grisham administration officials said Tuesday.

Sen. George Muñoz, D-Gallup, the chairman of the Senate Finance Committee, questioned the long-term feasibility of the plan.

“I don’t think we can afford to pick up every teacher’s health insurance,” Muñoz told the Journal. “It’s not sustainable.”

He also said the Legislative Finance Committee would be proposing slightly larger salary increases for state workers and teachers than the governor.

Ending poverty

Lujan Grisham, who vowed during her inaugural address on Jan. 1 to work to end generational poverty in New Mexico during her second term, also included in her spending plan more funding for economic development initiatives and mental health treatment for children held in state protective facilities.

The Democratic governor described the proposals, and others included in the budget plan, as “new and innovative strategies that are disrupting the status quo, that help our children, our families, our schools, our small businesses and our entire economy to grow and prosper.”

The 60-day legislative session starts Jan. 17.