SANTA FE, N.M. (AP) - The New Mexico Legislature sent a $6.1 billion spending plan and companion tax increases to the governor on Friday that would slightly boost funding for public schools and stabilize most state agencies in the coming fiscal year.
The party-line vote in the Democrat-led House of Representatives sets up a showdown with Republican Gov. Susana Martinez, who can veto all or portions of the budget and taxation bills.
Keith Gardner, chief of staff for Martinez, said the governor would veto tax increases and her office is preparing for a government shutdown.
“We’ve got a cash issue that hasn’t been addressed,” Gardner said. “We cannot overspend. The constitution requires a balanced budget.”
The revenue bill would raise roughly $350 million in new taxes and fees on gasoline sales, retail sales over the internet, trucking permits and nonprofit hospital operations - enough to fill a $156 million budget hole, pay for road repairs and replenish depleted reserves in an effort to shore up the state’s recently downgraded credit rating.
Overall general fund spending would increase by $23 million for the fiscal year starting in July. Money for K-12 public schools would increase by 0.5 percent, with a 2.5 percent bump for a judiciary branch that has struggled this year to pay salaries, compensate jurors and provide attorneys to poor defendants. The legislation cuts funding to state universities, colleges and specialty schools by 1 percent.
Gardner said he was hopeful Democrats and the governor could come to an agreement by noon Saturday when the Legislature ends by law. If no agreement is reached, Gardner said Martinez will have no choice but to call for a special session.
Minority Republican lawmakers in the House want any revenue increases to include an overhaul of the state’s gross receipts tax to eliminate tax breaks that include exemptions for nonprofits, while lowering overall rates to improve the state’s business climate. Those measures have yet to win the Senate’s endorsement amid opposition from various industries, nonprofit health care institutions and school districts that would lose exemptions, credits or deductions.
Democratic lawmakers have warned repeatedly that without new revenue streams, more cuts to public schools and state agencies are inevitable. On Thursday, a rally to sustain educational funding encircled the Capitol after Santa Fe’s public school district let classes out early.
“The governor and House Republicans have refused to consider reasonable and responsible revenue solutions,” Democratic House Speaker Brian Egolf said in a statement. “The elements of the revenue package are fair and broad-based. We are leveling the playing field for local businesses, blocking a corporate income tax cut, and generating critical revenue for roads and schools.”
Public schools in New Mexico rely on state government for nearly all of their operating budgets. The state cut spending on public schools in October by more than 2 percent and more recently swept funding from school district reserves to plug a current-year deficit.
A bill that would restore $46 million in recent cuts to school district reserves, by redirecting construction funds, cleared both chambers of the Legislature.
New Mexico has the nation’s highest unemployment rate, while a sustained slump in the state’s oil and natural gas sectors have sapped traditional sources of state general fund revenue.
The state has burned through reserves that stood at over $700 million in mid-2015, while repeatedly scouring idle accounts for cash - leaving few options for quick budget fixes in the fiscal year that starts July 1.
The governor and Republican colleagues have pushed to shore up state finances by transferring money from legislative retirement and capital spending accounts.
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