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Tuesday, July 05, 2016

State's Fiscal Crisis Begins To Upend GOP No New Taxes Pledge 

This column also is running in the ABQ Free Press.

There's nothing like a prolonged oil and gas crash to turn heads and change minds. For example, earlier this year conservative Rio Rancho Republican State Rep. Jason Harper, a key player on the state budget, said this of raising the gas tax to replenish the state's starving treasury:  "For the pain we'll cause New Mexico families, its not really an effective solution." 

Flash forward to the sour budget summer of '16 and Harper is going where no Republicans have gone in years. He now says he would consider raising the gas tax a couple of cents a gallon as the budget continues its historic hemorrhaging.

“I think it’s naive to say no new taxes or no changing taxes As our economy changes, we’ve got to change our tax structure," says Jason Harper 2.0.

Harper, chairman of the House Ways and Means Committee which presides over tax policy, is still staying he wants to offset any tax increases with tax cuts, but that doesn't hide the fact that this is a major policy turnabout for him and the other R's who are now saying the fiscal crisis demands more long-lasting solutions.

The Legislature has been relying on one-time fixes to get through the crunch brought about by plunging taxes and royalties from the depressed oil and gas fields. It's made worse by a largely stagnant economy that fails to produce sufficient revenue to meet ever lower state budget calculations. Massive tax cutting under Governors Richardson and Martinez combined with the energy bear market to create a lasting financial storm.

Note that word "lasting." Unlike past, short-lived downturns in the oil price this one appears different, with world supplies continuing to grow and demand not so much. If that stays the case the budget debacle we are now seeing will remain an annual event, unless there is a fundamental restructuring.

SUSANA ON SIDELINES

It seems lawmakers on both sides of the aisle are realizing that reform will need to  include tax increases as well as spending cuts. Soon we expect them to be brought dragging and kicking to an overdue discussion about a downsizing of the state's byzantine and very expensive higher education system, a consolidation of rural public school districts and elimination of some the hundreds of special interest tax exemptions. That would be a plan, not the seat of the pants crisis management we have been enduring and which does not prioritize spending but ends up cutting most everything across the board. 

Rep. Harper
Gov. Martinez remains on the sidelines as members of her own party toy with revenue raising ideas but with the storm accelerating we'll soon find out if her oft repeated "no new taxes" pledge is written in cement or whether she begins seeking wiggle room.

The most damaging aspect of the current management has been the ill-advised cuts to the state Medicaid program. Each state dollar of Medicaid is matched three to one by the federal government. Still, it is slated for a cut that will strip the state of hundreds of millions. 

As for the gasoline tax, it would impact the lower income residents the hardest, but with prices at multi-year lows the hit would be minimal, plus tourists and truckers crossing the state would share the burden.

CRUNCH TIME

The Legislature put the state's budget for the current fiscal year that ended June 30 at about $6.2 billion, but the shortfall appears to be headed for over $500 million. Just about the entire state budget reserve has been drawn down to make up the difference. Now lawmakers have to start all over again and rework the budget for the year that started July 1 because it looks like more of the same. And then there's the rough budgeting for the year that begins July 1, 2017. 

Waiting for the energy market to rebound has been like waiting for Godot. New Mexico needs a plan to deal with the new and unpleasant reality that there will be no major economic rebound in the immediate years ahead and that the state's population will continue to stagnate. However, the number of its disadvantaged citizens will grow as will their needs. In other words, it's a lousy time to be a state legislator.


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