Corporate Tax Giveaway Update: Gov. Martinez’s budget wizard apologizes for misleading legislature

Back in mid-March during the closing minutes of the 2013 session, the New Mexico House passed a massive corporate tax cut package — with no floor debate and no questions permitted. And, in what most observers believe was an unprecedented breach of protocol, Department of Finance and Administration Secretary Tom Clifford was allowed to take the microphone on the House floor and speak. His budget wizardry was enlisted in a last-ditch attempt to calm the anxieties of legislators.

Why the heartburn? Well for one thing, hardly any of them had had a chance to read the so-called “compromise” bill that had sprung out of Finance Committee the night before. The House Taxation and Revenue hadn’t seen the bill — although it had previously rejected many of its key components earlier in the session. There were legitimate long-term concerns about fiscal impacts of such a far-reaching measure.

This was a bill that would slash the corporate tax rate and replace some of the lost state revenue by pushing the tax burden onto New Mexico counties and municipalities.

But never fear, they said! Tom Clifford is here.

And he won the day with his stand-up routine. The rules of the legislative process were stretched beyond the breaking point. Yet based on his confident assurances, the bill picked up enough Democrats to pass with time having expired on the clock.

Governor Martinez wasted no time in signing HB641 into law. Then her PR flacks kicked into overdrive, spinning the national news media with a tale of New Mexico’s bold Latina Republican governor whose consummate political skill brought an obstructionist Democratic legislature to its senses and got it to pass “her landmark tax reform.”  (Subtext: Don’t you know presidential timber when you see it!)

Out-of-state political fundraisers featuring the all-conquering Governor quickly ensued.

Well, the story doesn’t end there.

Yesterday, almost two months after that day of infamy in New Mexico legislative history, we got the rest of the story. From the Albuquerque Journal:

Apology given for tax bill information
By Dan Boyd on Wed, May 15, 2013

SANTA FE – The top budget official in Gov. Susana Martinez’s administration apologized to legislators Tuesday for claiming in March that a massive tax package would have a positive fiscal impact to the state during each of the next five years.

Finance and Administration Secretary Tom Clifford told members of an interim legislative committee Tuesday the information he provided on the House floor during the final hours of this year’s 60-day session was based on a different version of the bill.

“I apologize for that,” said Clifford, who testified on the tax package during the frantic final minutes of this year’s session.

In contrast to Clifford’s original claim, an estimate released after lawmakers approved the tax package calculates that the legislation will cost the state more than $70 million in forgone revenue in the 2017 fiscal year. It will provide the state with about $15 million in additional revenue during the next two budget years before the fiscal impact turns negative, according to the estimate, which does not factor in possible future economic development.

At least one Democratic lawmaker said Tuesday that he did not think the tax package would have been approved by the Legislature if Clifford had originally portrayed the budget hit as negative.

“If he would have told membership the truth, I don’t think they would have voted for it,” said Rep. Jim Trujillo, D-Santa Fe, who voted against the bill.

Read the rest of the story here… and weep.

“Baby Step” for Big Boxes Only: Senate passes limited combined reporting bill

By Matthew Reichbach

The state Senate passed a narrow combined reporting bill (SB9) that would require so-called “big box” stores to pay taxes on income earned in New Mexico. The bill, which tracked the Senate Finance Committee substitute, exempts other businesses like multi-state banks and national fast-food and restaurant chains from combined reporting.

The measure cleared the Senate on a party line vote, with all Democrats voting for the legislation, all Republicans except for one, who was absent, voting for the legislation.

In addition to requiring the big box stores to file taxes using combined reporting, the bill drops taxes on the top corporate income tax rate from 7.6 percent to 7.5 percent. One reason, according to the bill’s sponsor Sen. Peter Wirth (D-Santa Fe), is that the Senate Finance Committee was wary of dropping the corporate tax rate too far in the current turbulent economic times.

There was a long debate on an amendment by Sen. Eric Griego (D-Albuquerque) that would have returned the bill to the original language before it was changed in the Senate Finance Committee. This would have required all out of state corporations to pay their taxes using combined reporting. This, Griego said, would have made sure that entities such as banks would pay their fair share in taxes in the state.

That amendment failed with only five Senators voting for it.

This was the first time that the legislation, which Wirth has carried since he joined the legislature in 2005, has passed the Senate. Wirth made a number of concessions to allow the bill to pass, including lowering the top corporate tax rate and restricting the combined reporting requirement to “big box” stores.

The legislation defines a “big box” store as those ” a unitary corporation that provides retail sales in a facility of more than thirty thousand square feet under one roof.”

Wirth referred to the legislation as a “baby step” a number of times and is a revenue-neutral piece of legislation. He noted that if his bill in 2009, which did not drop the top income corporate tax rate and related to all out of state corporations, it would have increased state revenues by $80 million to $90 million per year according to the fiscal impact report.

Sen. Steven Neville (R-Aztec) disputed the notion that this was a tax loophole that gave out of state corporations an edge. He said that it “is the law of the land of the state of New Mexico.”

Griego said that it was all semantics and they could debate what a loophole really is.

Allan Oliver, CEO of the New Mexico Green Chamber of Commerce, applauded the Senate vote. Oliver said, “This is a big win for New Mexico’s small businesses. This bill lowers corporate taxes for small business, requires ‘big-box’ corporations to pay their fair share and helps our small retail businesses compete on a level playing field.”

Wirth also referred to the bill being one that would help level the playing field for locally owned businesses and used it as an example of why he believed that broader tax reform is needed.

“We’ve got a tax code right now filled with winners and losers,” Wirth said.

Voter ID Bills Fail in Committee

By Matthew Reichbach

Three voter ID bills failed in the House Consumer and Public Affairs Committee on Tuesday on party-line votes.

The Democrats on the committee voted to table the three bills that would have required voters show photo identification, siding with the majority of the crowd at the hearing who said the bill would disenfranchise young, elderly, minority and disabled voters as well as costing significantly more than the Fiscal Impact Report predicted.

The three pieces of legislation, all sponsored by Republicans, were tabled after a lengthy hearing process that included over half an hour of public comment.

The bill sponsored by Rep. Dianne Hamilton (R-Silver City) would have allowed voters to use the last four numbers of their Social Security Number to prove their identity at the polls. The version of ID legislation sponsored by Rep. Cathrynn Brown (R-Carlsbad) would require a government-issued photo ID to vote in person and, to cast an absentee ballot, a copy of the photo ID would be required.

The bill sponsored by Rep. James Smith (R-Sandia Park) was the result of work during the interim by county clerks and Smith. A complex bill, it was one that the county clerks would prefer to the other voter ID approaches, according to the county clerks association lobbyist Daniel Ivey-Soto.

Opponents rallied against the bills

An array of organizations, ranging from the League of Women Voters to Disability Rights New Mexico to the Native American Voters Alliance, opposed the legislation on the grounds that it would disenfranchise voters and would do little to solve purported voter fraud.

The majority of the crowd present in the committee room were in opposition.

Rep. Moe Maestas (D-Albuquerque) said he didn’t believe that voter fraud was a problem in the state, comparing it to the “bogeyman.”

“If my constituents want me to introduce legislation to outlaw the bogeyman, I can introduce legislation to outlaw the bogeyman, or I can gently explain to them that the bogeyman does not exist,” Maestas said to laughter from the crowd.

Committee chair Gail Chasey (D-Albuquerque) opposed the bills and singled out Smith’s bill as overly complicating the absentee ballot, saying, “I find the absentee ballot daunting as it is.”

And Rep. Bill O’Neill (D-Albuquerque) said he the claims of voter fraud all seemed to be based on anecdotes rather than any real evidence.

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After delay, budget clears key committee, House floor is next

By Matthew Reichbach

The state budget has cleared the House Appropriations and Finance Committee after a week of negotiations. The $5.6 billion budget cleared the committee unanimously.

State Rep. Luciano “Lucky” Varela (D-Santa Fe) told New Mexico In Focus that it was important for the vote to be unanimous.

“I had a concern that if it was not a unanimous vote, people would pick up on that,” the HAFC Vice Chair told In Focus.

There was some delay after Republicans on the panel said they were not happy with the bill.

NMPolitics.net reported last week that the objections to the bill came from the governor’s office.

Martinez spokesman Scott Darnell told the website that he was concerned about some of the governor’s priorities being put “in a contingency status.” This would mean these might not get funded if the state’s revenues are lower than predicted.

The budget passed by the House would cede some control to Martinez. As New Mexico In Focus reported:

A committee analysis notes new language has been added that give the Department of Finance and Administration (and thus, Governor Martinez) authority to reduce allotments to programs if revenue falls short. That provision excludes Medicaid, developmental disabilities support programs, law enforcement, inmate management for the Department of Corrections and any agency with a budget of less than five million dollars in general fund appropriations. Further, representatives wrote in a clause that allows 2.5 million dollars to be used by DFA for critical public health and safety emergencies that would arise due to budget cuts.

Another sticking point that delayed the hearing was money for so-called “below the line” funding for the education department. this would make it easier for Martinez to implement the changes that she has advocated for throughout her time in office.

The budget will now head to the House floor where, if the HAFC vote is any indication, it should pass. However, the budget will then have to travel to the Senate which has traditionally rowed in its own direction, separate from the whims of the House or the governor’s office.

It’s Alive: Bill to close out-of-state corporate tax loophole clears first committee

By Matthew Reichbach

A combined reporting bill that would close the loophole that allows multi-state corporations to avoid paying income tax on profits created in New Mexico, passed a key Senate committee Wednesday night, the first hurdle in its effort to become law.

After over two hours of debate, the Senate Corporations and Transportation Committee passed SB 9 on a 5-4 vote with no recommendation. Sen. Phil Griego (D-San Jose) voted along with the Republicans on the panel.

Sen. Peter Wirth (D-Santa Fe) brought the law for the fourth straight year, this time with some tweaks. In addition to calling for combined reporting, Wirth’s law would reduce the top corporate income tax rate to 7.0 percent from 7.6 percent, a difference from the past years to entice votes that otherwise have gone against the bill.

Wirth and supporters of the bill say the bill would level the playing field for small businesses in New Mexico that do not have the option of paying corporate taxes in another state. Those who oppose the bill say it would make New Mexico less competitive and stop businesses from coming to New Mexico to do business.

“These small businesses are put in a position of competing against multistate conglomerates,” Wirth said, saying the large corporations can expense profits to other states instead of paying the New Mexico taxes.

In an attempt to make the legislation hit a more narrow area of businesses, Griego proposed an amendment that would only require retail outlets of more than 30,000 square feet to comply with combined reporting. Griego called it his “big box amendment.” It was aimed squarely at corporations like Walmart and Target while attempting to exempt other businesses like Intel Corporation. But it would also have exempted large fast food chains.

Wirth called the bill a sort of “reverse carveout” which “carves everybody out except big box stores.”

The amendment ultimately failed.

A common complaint of those who were opposing the bill, who were all lobbyists for multistate corporations, is that this bill would be favoring one class of businesses (locally owned businesses) over another class of businesses (multi-state corporations).

“I’m not the one pitting businesses against businesses,” Wirth told the committee. “We already do that in our tax code.” Wirth said this bill would level the playing field.

The bill now heads to the Senate Finance Committee where it probably faces a similarly tough debate. Nevertheless, clearing Senate Corporations was a notable achievement, given the committee’s long-standing and well-deserved reputation as the home field for corporate lobbyists.

Odds and Ends

  • One problem is that no one quite knows just how much the tax loopholes and carveouts cost the state in lost revenue. A bill requiring a tax expenditure budget, which would fully account for the effects of all the tax breaks, was vetoed last year — something that Sen. Tim Keller (D-Albuquerque) called a preemptive strike against tax reform. Gov. Susana Martinez will release her own tax expenditure budget, but, due to the veto, the next governor will not be required by statute to follow her example. Former Gov. Bill Richardson also vetoed a tax expenditure budget.
  • Former Sen. Kent Cravens came back to the New Mexico legislature, this time as a lobbyist for the New Mexico Oil and Gas Association. He objected to the term “loophole” to describe businesses paying taxes in other states on the revenue created in New Mexico, saying it “demonized” businesses for filing in an appropriate fashion. Cravens probably also objects to the terminology of the “revolving door” — a reference to the practice of former legislators immediately returning to the Roundhouse as corporate lobbyists.
  • Sen. George Munoz (D-Gallup) said that the bill would ultimately make corporations layoff workers to keep their profits up.
  • Though the room cleared out because of the late start to the hearing (SB 9 was not heard until after 6:00), the room still had many supporters of the legislation. When they applauded after public comment, committee chair Griego seemed visibly upset and instructed the audience that they were not in a city council or county commission hearing and to not burst into applause. Before coming to the state Senate in 1996, Griego served on the Santa Fe City Council.
  • Supporters of the bill asked questions of Frank Katz, the former General Counsel at the New Mexico Taxation & Revenue Department. Opponents of the bill tended to direct their questions to Dick Minzner, a lobbyist who has long opposed combined reporting on behalf of his clients.

Senate floor action features criticism of Governor’s messages and the Albuquerque Journal’s coverage

By Matthew Reichbach

Senate President Pro Tem Tim Jennings speaking on the floor of the Senate. Photo by Matthew Reichbach.

Two state Senators stood on the Senate floor today and leveled criticism at the Governor’s office for its handling messages to the legislature, and at the Albuquerque Journal for a news story about the controversy. The issue of Governor’s messages has a bearing on on which bills can be ruled as germane for consideration during the session.

In a 30-day session like the current one, the only bills allowed to be considered and acted upon are those that pertain to budget matters — or those that are related to any subject contained in a Governor’s message. Some lawmakers have said that the messages from Martinez are overly broad and would create a logjam of legislation during the 30-day session.

Martinez was criticized last year for adding a large number of subjects to the official call for September’s special session which some legislators, predominantly Democrats, said would distract from the constitutionally mandated task of redistricting — a complicated job that happens only once every ten years.

At issue in the Albuquerque Journal story was a quote from Scott Darnell, a spokesman for Martinez.

“Despite our efforts to be accommodating, they have expressed a desire to be more restrictive and … we will work with that, but members who are unhappy with their bill not being heard would need to speak with their leadership – and not the Governor’s Office,” Martinez spokesman Scott Darnell said.

Senate President Pro Tem Tim Jennings (D-Roswell) took exception to the quote, saying, “There were no errors on the part of the Senate or House. The messages were very broad.”

Jennings explained that the Senate would not ask the Governor to “pull back” her messages to the Senate and issue new, narrower messages, but instead keep the original messages in place and that future messages be made narrower in scope. Jennings explained that the Senate Committee on Committees had already ruled legislation germane based on the original messages, adding that it would be unfair now to pull that legislation back.

“Those messages had gone out and the cards had been played,” Jennings said.

Sen. Cisco McSorley (D-Albuquerque) criticized the Albuquerque Journal for its story, accusing it of bias.

McSorley said the Journal does not get both sides of the story. “They seem to reprint press releases from the Governor’s office and that they’re not really helping people of the state of New Mexico understand how their government functions and how the stakes are made.”

Of course, legislators complaining about the way the media writes a story or about the Governor’s actions is not unusual. However, it does provide an interesting interlude during the early days of the session when most of the action is dominated by routine minutiae like passing committee reports and expressing support for the Boys and Girl Club of New Mexico.

Odds and Ends

  • The Santa Fe New Mexican reported that even some in the Republican Party were critical of the Governor’s messages.
  • McSorley noted that the Albuquerque Journal does not pay gross receipts tax. This brings to mind a move in Oklahoma to place a sales tax on on the cost of newspapers to pay for bonuses for National Board Certified teachers.
  • Over 200 bills have been introduced in the Senate so far this session — only a fraction of those will make it out of committee, let alone be passed along fro Martinez’s signature — or veto.

Hundreds rally at Roundhouse in support of drivers licenses for undocumented immigrants

By Matthew Reichbach

A nun participating in the protest against repealing the law allowing undocumented immigrants to earn drivers licenses. Photo by Matthew Reichbach

Hundreds of immigrants and supporters of immigrant drivers licenses rallied outside the Roundhouse Tuesday morning hoping to send a message to Gov. Susana Martinez. The rally, so far the largest at the Roundhouse in the 2012 session, included support from the Catholic Church and organized labor.

A theme among the protests was that keeping the current drivers license policy promotes greater public safety by giving law enforcement a current and complete database of driving and other offenses.

“You drink, you drive, who knows?” was a popular chant, referring to the popular anti-DWI campaign, “You drink, you drive, you lose.”

Allen Sanchez, Executive Director of the New Mexico Conference of Catholic Bishops, speaking at drivers license rally. Photo by Matthew Reichbach

The Catholic Church has been a staunch opponent of the movement to repeal the law that allows undocumented immigrants to earn New Mexico drivers licenses.

Allen Sanchez, the Executive Director of the New Mexico Conference of Catholic Bishops, echoed his speech from a similar rally in September.

“I have a message,” Sanchez told the crowd. “Governor, Jesus was an immigrant!”

Sanchez said that this is a “gospel issue” for the Catholic bishops in New Mexico and said that the legislature should instead be focused on other priorities during the session — notably funding schools and creating jobs.

Daniel Manzano, Director of Policy and Communication for the New Mexico Coalition Against Domestic Violence, said that keeping drivers licenses for undocumented immigrants was important for his group for three main reasons.

For example, it allows victims of domestic violence to be able to drive away from abusive husbands “safely and legally.” He also said that driver licenses would allow these women to be financially independent. He also said the drivers licenses count as a form of identification for the courts, which is necessary to get an order of protection.

“The weather can’t even stop us today,” Manzano said, referring to the overcast skies and occasional flakes of snow dropping onto the large crowd.

Odds and Ends

  • A clever noisemaker that was handed out to many protesters was made out of two plastic cups taped together with rocks inside.
  • A chant that the protesters repeated while marching around the Roundhouse and in front of the rally’s stage was, “Susana, escucha, somos en la lucha!” Loosely translated, that means, “Susana, listen, we are in the struggle!”
  • The most popular headwear at the rally was Los Angeles Dodgers hats. The Dodgers are popular among the Mexican-American community in large part because of Fernando Valenzuela, the legendary Mexican lefthander who won 173 games in 17 big league seasons.
  • For more photos, see my Flickr set.