It is interesting to note that both the House and Senate are concerned with the increased number of Governor exempt employees, over the past seven years as the number of Governor exempt employees has increased by 281 to a total of 816, with 7 new positions being added this past year during the hiring freeze.

The Governor did announce that he is going to form a working group comprised of legislators, business people, advocates, etc. to look at ways to address the shortfall for future years with proposals for the January session.  ACI is extremely pleased with this recommendation proposed in President McClure’s Op-Ed that ran in papers across the state prior to the special session.

We attended the first meeting of the House Rules and Order of Business Committee where discussions were being held to address the question of whether or not the Governor's Proclamation properly limited the introduction of any legislation to increase taxes or provide revenue enhancements.   There is a great deal of disagreement amongst members of the legislature regarding how to best address the State’s budget shortfall.

A literal reading of the Proclamation clearly states “this special session is called for the purpose of considering and enacting legislation concerning the following objects and no others:” it further states “legislation to balance the state’s fiscal year 2010 budget, limited to such measures as set below, and excluding any other measures that would alter existing taxation and/or revenue enhancement structures:”  The debate centered around separation of powers and the constitutionality of the Governor’s wording, limiting what the legislature could do to resolve the current budget shortfall and whether or not he had the constitutional authority to do so.

Paula Tackett, Director of Legislative Council Service, was asked for her opinion on the constitutionality of the proclamation, specifically the Governor’s authority to limit the actions of the legislature, and she responded by quoting the constitutional provision regarding matters that can be brought before a special session found in Article IV section 6 that “Special sessions of the legislature may be called by the governor, but no business shall be transacted except such as relates to the objects specified in this proclamation.” She also stated that there was no New Mexico case authority on point.

This is the question that was debated on each piece of legislation to increase taxes that were referred to the Rules Committee for a determination of whether or not they were germane.  Twenty-three pieces of legislation were debated, and those most pertinent to business are presented below with the committee vote on whether or not the legislation was ruled germane on not.

Only bills that are found germane are reported out in the floor session where a vote is taken to adopt the committee report and then the bill is ordered printed and referred to appropriate committees for hearing.   Any bill that was tabled in committee is not reported out during committee reports on the floor of the house and therefore no action can be taken on that piece of legislation. There were bills introduced that address the increased spending (40% over the past seven years):

HB11: Educational Retirement and Retiree Health Care Contributions introduced by Rep. R. Miera provides for the delay of General Fund increases to education retirement and retiree health care funds. The bill was ruled germane by a 17 to 1 vote.

HB15: Executive Agency Budget Reduction introduced by Rep. T. Taylor directs the governor to reduce recurring expenditures in FY2010 (which began on July 1 of this year) for budgets of executive agencies under his control by at least $433 million. Further directs the governor to carry these reductions forward in preparing the FY2011 executive budget recommendations. Also directs the governor to reduce these budgets by an additional $217 million including reductions in nonrecurring expenditures. This bill was ruled germane by a unanimous vote and will be heard on the House floor.

HB16: Legislative Branch Appropriations Reduction introduced by Rep. K. Martinez would further reduce General Fund appropriations made to the Legislative Branch of government for fiscal year 2010 by 5.3 percent rounded to the nearest $100.The bill was ruled germane by a unanimous vote.

HB17: House Leader’s Fiscal Year 2010 Budget Reductions introduced by Rep. L. Varela provides for across the board budgets cuts that are somewhat more moderate than those proposed on the Senate side. The bill was ruled germane by a 15 to 5 vote.

HB24: Reducing Exempts and Prohibiting Transfers introduced by Rep. N. Cote calls for the State Personnel Act to be amended to prohibit exempt employees in the Executive Branch from transferring into classified positions during the last two years of an elected official’s term.It also requires the governor to undertake, by January 22, 2010, a reduction in force program of 180 exempt employees under his control (approximately 450 positions). The bill exempts from the reduction-in-force are employees who have been confirmed by the Senate, or are required by a specific law, and those who make an annual salary of $50,000 or less. The bill was ruled germane by a 15 to 4 vote.

Though no tax bills were ruled germane per the Governor’s Proclamation, they do provide insight into what the business community needs to be prepared for in the regular session beginning in January. Those bills include:

HB2:  Increase Income and Sin Taxes introduced by Rep. Miguel Garcia proposes to:

• Restore the Personal Income Tax levels to that of 2001
• Require corporations to file mandatory combined
• Increase cigarette tax by 50 cents
• Increase tobacco produce tax from 25% to 40% of product value
• Increase the liquor excise tax in various amounts
• This bill was tabled by a vote of 16 to 4.

HB7: Capital Gains Deduction Cut introduced by Rep. R. Begaye would limit the state capital gains deduction to $1,000 for taxpayers with taxable incomes over $200,000. Those with $200,000 or less may continue to deduct half of their net capital gains. The bill was tabled by a 15 to 3 vote.

HB9: Corporate Income, Franchise Tax also introduced by Rep. R. Begaye would partially replace the corporate income tax with an expanded franchise tax. The corporate income tax is reduced in four steps from 2010 to 2013 while a restructured franchise tax increases. The bill was tabled by a 15 to 3 vote.

HB12: Cigarette, Tobacco Product Tax Hikes introduced by Rep. B. Egolf proposes that the cigarette excise tax jumps by $1 per pack, with all of the revenue increase flowing to the state General Fund. The tobacco products excise tax would go from 25% to 40% of the wholesale price of the product. The bill was tabled by a 14 to 6 vote.

HB13: Liquor Tax Increase introduced by Rep. B. Egolf proposes that the liquor excise tax rise from $1.60 to $2.40 per liter on spirits, 41 cents to $1.48 per gallon on beer, from 45 to 85 cents per liter on wine, and from $1.50 to $2.30 per liter on fortified wine. The tax on beer produced by microbrewers rises from eight cents to $1.15 per gallon. The tax on wine produced by small winegrowers goes from 10 to 50 cents per liter on the first 80,000 liters and from 20 to 60 cents on production above 80,000 liters. The bill was tabled by a 14 to 6 vote.

HB14: Motor Vehicle Excise Tax Increase also introduced by Rep. B. Egolf would raise the motor vehicle excise tax rate from three percent to five percent.  The bill was tabled by a 14 to 6 vote.

HB23: Public School Income Tax Refund Contributions introduced by Rep. K. McCoy would create an optional designation for a personal income tax contribution for the operation of public schools. The bill provides for an individual taxpayer to designate a portion of the refund due to be used for the operation of public schools, and provides for distribution of these amounts to the Public School Fund. The bill failed on a 10 to 10 tie vote. However, it is still in committee, and may be reheard if the House Rules Committee meets again.