Thursday, March 09, 2017

Early Childhood Amendment A Go In House But Senate Is Still Sty In The Eye, Plus: Guv And Dems Rush To Embrace Harper Tax Plan As Part Of Budget Deal, But Big Questions Surface 

Once again the state House has approved a constitutional amendment--37-32--that would let voters decide in 2018 if they want to tap about $150 million a year from the state's $15 billion Land Grant Permanent School Fund for mostly very early childhood education (ages zero to five).

As in years past the debate ran along familiar lines, with Dem Reps. Moe Maestas and Liz Thomson arguing that a focus on very early education would disrupt decades of failure that have put the state in the cellar in child well-being and poverty rankings. Republican Rep. Dennis Roche claimed that tapping the fund would "mortgage our future."

The argument that carried the day pointed to a study by Dr. James J. Heckman of the University of Chicago putting the rate of return on investment in early childhood education at 13% annually. A Dem spokesman saying: "Children who benefit from early childhood programs have significantly better life outcomes in education, health, social behavior, and employment. They are more likely to graduate from high school and college and they are less likely to be involved in crime. It is a moral imperative that we invest in early childhood education now.”

The surprise this year was a Republican representative voting for the amendment--Yvette Harrell of Alamogordo.

The sty in the eye for the amendment is Senate Finance Committee Chairman John Arthur Smith. He isn't budging in his opposition but advocates are still prepping for a last minute push in the Senate with the legislature set to adjourn March 18.


Legislative leaders might want to pay attention to this as they (and Gov. Martinez) rush to embrace legislation from Republican Rep. Jason Harper that would eliminate dozens of exemptions to the state's gross receipts tax. Martinez and lawmakers have discussed incorporating it into a budget deal.

Harper has agreed to back off on the most controversial part of the legislation--a reinstatement of the tax on food--and that has a lot of legislators looking the other way on other provisions of this big tax overhaul--HB412.

The bill passed the House unanimously late last night and now moves to the Senate. Here from the Roundhouse is in-depth Alligator analysis for Gov. Martinez and Dem Senators Smith and Cisneros in particular to mull over. The bill may actually increase taxes:

I am positive that no House member except for Harper has read the bill (over 300 pages) or even considered its implications. HB 412 tries to expand the gross receipts base by eliminating most of the GRT deductions, exemptions and credits currently available, which should in theory reduce the state and local rates. 

However, the bill also tries to eliminate most business-to-business pyramiding by allowing a deduction from gross receipts for most services businesses purchase. Nobody in the state knows exactly how much this will actually cost, and the kind of analysis needed to get a reliable number will require an economic modeling study. The entire bill relies on data generated by a "Tax Simulator" which has never been reviewed for accuracy by any independent person. The biggest potential revenue-raiser, reimposing the tax on the sale of food, is no longer in the bill. Coupling the anti-pyramiding provisions with not taxing food means that the state and local tax rates could actually increase.
Rep. Harper

The bill does not set a tax rate. Professional state economists will be charged with figuring this out prior to July 1, 2018. The idea is that the gross receipts base will expand, allowing for the state and local rates to be reduced. Instead of the legislature setting a rate, economists in the executive and legislative branches will set the rate. This is probably an unconstitutional delegation of power by the legislature to unelected state employees. 

 Local tax rates will be set by the economists using a similar estimating methodology. But without actual data or a professional dynamic study, there is no way of knowing what will happen. This is not the best way to recruit businesses to New Mexico. Companies looking to locate here won't even know what the sales tax rates will be next year until a few months before they go into effect.

In the original bill, the fiscal impact report estimated that the effective state tax rate could be reduced from anywhere between .12% and .9%, with a corresponding proportional reduction being made to local rates. However, that bill included the repeal of the deduction of food receipts from gross receipts, which the new bill does not do. When the legislature enacted that deduction in 2004, economists estimated that the net result of that deduction equaled a rate increase of .5%. (They significantly underestimated the cost of that deduction, resulting in more than $1 billion in unexpected foregone revenue since then.) So, using simplified math, we can add .5% to any new state tax rate. That means the new effective tax rate will be between 3.78% and 4.56%. Note that the upper end of this estimated rate is actually much higher than the current effective GRT state rate of 4.16%.

The impact on local governments has not been studied. In theory, on average, municipalities and counties should get the same amount of money they have been getting, but there is no guarantee that they will. The bill sets up a local government fund to offset any losses, but that fund only gets money distributed to it if the state realizes extra revenue from the changes.

Th rush job on the Harper bill reminds us of another one in 2013 when a "bipartisan" coalition rammed through a corporate income tax cut at the last minute that was barely studied and has ended up costing the state much more than expected and did not deliver on its promise to attract more jobs. How about a well-thought out overhaul of the state tax mess, instead of an ad hoc approach that appears to be stacked?


Suddenly, GOP southern NM Congressman Steve Pearce can't get enough of town hall meetings. This Saturday in Hobbs he will hold his second, after an initial outing last Saturday in Ruidoso. The meetings come on the heels of criticism of Pearce for initially shying away from what can be a volatile format in the age of Trump. However, Ruidoso and Hobbs are pretty friendly areas for Pearce. We don't see him doing one yet in Las Cures, the most liberal area of his district and where the event would be rowdy for Pearce, a possible '18 Guv candidate.


More about that radio program APS held last night to get public input on possible APS budget cuts but screened questions from listeners instead of having them directly question school administrations on-air. That drew criticism here and is responded to by APS:

We've lost count of the number of public meetings we’ve held this year to discuss budget. Those meetings are all open to the public and not limited to any one topic. The meeting dates are posted to APS.edu. As far as “screening" calls instead of taking live-calls, KANW doesn’t have the equipment to execute a live radio call-in show. Station manager Michael Brasher notes this is the first call-in show of this format KANW has tried. The equipment needed to support a call-in show carried a $2,600 price tag. An argument can be made that $2,600 is peanuts to spend on transparency. Maybe, but we’d also be criticized had we spent funds earmarked for the classroom on a radio show to discuss cuts.

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