State leaders say they’re closer to a deal on budget

Officials are expressing optimism in advance of next week’s special legislative session that they can reach a deal to address the budget crisis, but exactly what’s changed to make them hopeful isn’t clear.

In spite of a Friday meeting between Gov. Susana Martinez, a Republican, and Democratic legislative leaders, the rhetoric and the conditions under which a compromise can be found haven’t changed much.

Still, Martinez spokesman Mike Lonergan said the governor “had a productive meeting with Democrat leadership” on Friday.

“The governor is confident that there will ultimately be agreement on funding measures, including funding for higher education,” Lonergan said.

Similarly, Senate Majority Leader Peter Wirth, D-Santa Fe, said the governor and Legislature “are close to an agreement to reinstate the budget the Legislature worked hard to pass in the regular session.”

But that budget creates a shortfall, and the policymakers continued their standoff on how to fund the budget even after Friday’s meeting.

“The governor reiterated that she will not support standalone tax increases, but is hopeful that we will be able to find a bipartisan path forward on tax reform,” Lonergan said.

Policymakers are locked in a battle over making additional cuts and fund sweeps or raising taxes to address the shortfall. With bipartisan support in the Senate but only Democratic support in the House, the Legislature approved raising various taxes and fees earlier this year to generate $350 million in new revenue to help fund the state budget. Martinez vetoed the tax bill in addition to funding for the Legislature and higher education — which put the state’s colleges and universities in limbo as the beginning of the next fiscal year approaches on July 1.

Martinez says she’s willing to bring back the tax on groceries if it’s part of comprehensive tax reform, but she also wants to pull millions from lawmakers’ retirement fund — which the state agency that manages that fund asserts is unconstitutional.

Lawmakers are unlikely to pass a tax on groceries or taking money from their own retirement fund. They have approved a tax on gasoline, among other things, that Martinez says she won’t support.

And it’s not clear that the tax reform Martinez wants would raise new revenues. The proposal would include eliminating at least some exemptions in the state’s gross receipts tax code but would also reduce the overall rate and might eliminate so-called tax pyramiding, where a good is taxed during production and at sale. A new legislative analysis finds that reducing pyramiding in the tax code could eliminate more revenue for state government than previously estimated.

Many Democratic lawmakers have expressed concern about passing such complex tax reform in a quick session without much time for public debate or fiscal analysis.

“The updated costs of the prior tax proposal pushed by the governor leaves senators on both sides of the aisle with serious concerns,” Wirth said. “From day one, our goal has been to pass a responsible budget that funds classrooms, higher education, and critical state services while leaving our state on solid financial footing. That continues to be our priority as we approach the special session.”

Martinez has also said she wants her appointees to higher education regents’ positions, whose confirmation hearings have lingered, approved during the special session. But it’s not clear that will happen. The chair of the Senate Rules Committee, which holds hearings, called that a “distraction.”

“The governor should be ashamed that after hearing the pleas from our institutions of higher learning and the students they serve she still continues to try to divert attention from the financial crisis she created by asking legislators to instead focus on her political appointments,” the Albuquerque Journal quoted Sen. Linda Lopez, D-Albuquerque, as saying last week.

So what’s changed? Well, the state’s revenue outlook has improved some, so the projected shortfall may not be as great as it was when lawmakers last met in March.

It’s possible lawmakers and the governor could reach agreement on the budget but not taxes, and float along with a budget that’s not quite balanced until into the next fiscal year and then meet again to figure out the rest. All agree that restoring funding to higher education before July 1 is critical.

If the governor and lawmakers can’t reach agreement, the Legislative Council might also go back to the N.M. Supreme Court again after the session and ask it to restore higher education and legislative funding. The high court dismissed the Legislative Council’s petition earlier this month, which argued that the vetoes were unconstitutional, saying it wasn’t ripe for judicial review.

But if a deal doesn’t materialize during the session, it might become ripe for judicial review.

The session begins Wednesday at noon.