Governor signs tax rebates, shelves rest of reform

ROSWELL — Voicing concerns about the long-term consequences it could have on the state’s budget, Gov. Michelle Lujan Grisham wielded her veto pen, removing large swaths of an omnibus tax package Friday but stopped short of killing the bill.

Shortly before the deadline on April 7 to sign measures passed by state lawmakers during the recent 60-day legislative session, Lujan Grisham announced she had signed House Bill 547, an ambitious tax reform proposal.

Among other things, the bill spared from the governor’s line-item veto — one-time rebate checks to more than 900,000 New Mexicans in June who filed a state tax return in 2021 — a key priority for Lujan Grisham. Individual filers will receive a check of $500, while joint filers, heads of households and surviving spouses will get $1,000. That provision will cost an estimated $666 million, according to the Legislative Finance Committee.

The size of the rebates is less than the $750 for individuals and $1,500 for joint filers Lujan Grisham had called for in her State of State address at the start of the 60-day legislative session that ended March 18.

Other parts of House Bill 547 approved by Lujan Grisham include a boost in the child tax credit and film production tax credit and a provision to exempt co-payments and deductibles for many health services covered by insurance and managed healthcare plans from New Mexico’s Gross Receipts Tax.

“Every one of these provisions directly helps New Mexicans through supporting working families, bolstering the healthcare workforce and fostering continued economic growth,” Lujan Grisham said in a news release.

But the governor took an ax to much of the rest of the 144-page bill, a $1.1 billion tax package that had garnered bipartisan support. Among the casualties of her veto pen were tax credits for everything from geothermal energy to electric vehicles and charging stations, to purchases of classroom supplies by public school teachers, a rise in the credit for families who adopt a special needs child and an extension of a tax break for current and retired members of the armed services.

A move to raise the liquor excise tax and redirect all the revenue to programs to deal with substance abuse was shelved, as well as an overhaul of capital gains and corporate tax rates.

Even initiatives Lujan Grisham supported including a phased reduction of the state’s Gross Receipts Tax on goods and services paid by businesses, and changes to the state’s personal income tax system, did not become law.

Throughout the legislative process, Lujan Grisham expressed concern over the size of a tax package. Although the state is experiencing a $3.6 billion record surplus, Lujan Grisham has expressed concern over what a tax package, such as the one passed by the House and Senate, could mean in future years.

Her office estimated signing the entire package could result in a loss of $1.1 billion in annual revenue, something she said could lead to slashes in education, public safety and healthcare in future years, which altogether account for 83% of New Mexico’s budget. The revised bill Lujan Grisham signed will reduce recurring revenue for the coming fiscal year by $150 million and up to $246 million in fiscal year 2027.

Permanent and comprehensive tax reform should be considered, Lujan Grisham said, but it must be done responsibly, given the state’s heavy dependence on revenue from oil production.

“We are fortunate to have record revenues right now, but we know from past experience that this won’t last forever. While I am proud of our efforts to diversify our economy, our state budgets are still heavily reliant on the oil industry and its boom-and-bust cycles. We must prudently manage our finances now to prepare for inevitable economic downturns,” she said.

“HB 547 will deliver a more robust child income tax credit and put more money in the pockets of New Mexico’s working families. However, as signed, the bill falls short of the promises made to small businesses — including childcare providers — who are the backbone of our economy,” House Speaker Javier Martinez (D-Albuquerque) said.

State Rep. Derrick Lente (D-Sandia Pueblo), chair of the New Mexico House Taxation and Revenue Committee who sponsored House Bill 547, rejected Lujan Grisham’s assertions that provisions in the bill did not take into consideration the long-term effects on the state budget.

“We led a strong bipartisan effort in the House to make fiscally responsible investments in our state’s greatest needs today, with an eye toward tomorrow,” he said.

Lente added he looked forward to continuing to tackle tax reform during the interim and the 2024 legislative session but also lamented the bill ultimately signed into law did not include the sweeping changes contained in the bill sent to Lujan Grisham.

“It is disappointing that we will not be able to reduce the tax burden on local businesses, educators, veterans and everyday New Mexicans, or help our state improve access to rural healthcare and reach our climate goals,” Lente said.

Advocacy groups, such as the Rio Grande chapter of the Sierra Club, also voiced disappointment that credits meant to curb climate change were stripped out of the final bill.

“We are incredibly disappointed to see the @GovMLG line-item veto the climate tax credits in the comprehensive package. This is a climate emergency and merits emergency action,” the chapter posted in a tweet.

Paul Gessing, president of the Rio Grande Foundation, a self-described free-market think tank, and a critic of House Bill 547, said what was signed into law is worse than the bill he called on the governor to veto.

“What little pro-economic growth ‘punch’ the ‘omnibus’ tax bill had has been completely sucked out through the Gov’s vetoes of phased-in GRT reductions and modest personal income tax reductions at lower income levels,” Gessing tweeted.