At the beginning of the session, I called on the legislature to pass reforms making New Mexico more competitive with neighboring states. The mandatory cuts in Washington, D.C. will disproportionately hurt our state and while we will always fight to protect our labs and bases, we must simultaneously work to diversify our economy by building a stronger private sector.
I'm pleased that by passing the New Mexico Jobs Package, we reached a bipartisan compromise that will help our economy grow by leveling the playing field with surrounding states.
The New Mexico Jobs Package cuts the business tax rate from 7.6 percent to 5.9 percent. The 7.6 percent rate is the highest in the region and at 5.9 percent, New Mexico will be more in line with neighboring states. This will help attract new job-creating businesses to our state and help existing businesses grow.
The new reforms will also spur manufacturing by ending the practice of penalizing New Mexico manufacturers for exporting their goods to other states or countries. New Mexico leads the nation in export growth, and this tax reform will help build upon our success by encouraging existing manufacturers to expand while attracting new employers to our state.
We also enacted common sense reforms. For example, some corporations were exploiting current law to receive the "high-wage tax credit" for existing, or relatively low-paying jobs. Now, this credit will only apply to newly created positions paying at least $60,000 per year in urban areas and $40,000 in rural communities. This will align the credit with its original intent, while saving taxpayer dollars.
The bill closes a corporate loophole to ensure that large, out-of-state retailers do not pay fewer taxes than New Mexico-based companies. It also encourages these national companies to relocate more of their non-retail operations to New Mexico. These retailers will now have an incentive to move their manufacturing, distribution, transportation, logistics and other operations to our state Ð creating jobs and bolstering the manufacturing and distribution sectors we have worked so hard to revitalize.
It preserves the cap that the state pays each year in film incentives, while increasing the rate for television productions shot in New Mexico.
The new law slowly phases out the "hold harmless" subsidy the state has paid to local governments since 2004 when the state eliminated certain taxes. This subsidy has ballooned from $35 million when enacted to more than $150 million this year.
I have opposed these reductions in the past due to concerns about the impact that the sudden elimination of state funds could have on local governments. But in any compromise, particularly on the issue of tax reform, all sides have to give ground and make tough decisions on behalf of all New Mexicans. The final compromise package allows for a two-year planning period before phasing out the subsidy over 15 years.
I am committed to working with local leaders to make this a smooth transition, and that is why the 2-year planning period is so important. In 2011, it took us one year to eliminate a structural budget deficit that represented eight percent of our state budget, and we did it without raising taxes. I know local leaders have balanced similarly difficult budgets and I am confident that phasing out a subsidy that represents, on average, a similar deficit to what we faced can be done responsibly over 17 years. Ultimately, the economic development sparked by this overall tax reform package will benefit cities and towns throughout the state by creating more jobs and increasing revenues.
We face challenging times as we recover from the national recession, with federal budget cuts making recovery even more difficult. I am proud that we took these critical steps to make New Mexico more competitive, spurring new job creation right here at home. It was not a victory for one political party or another, but rather a victory for all New Mexicans as we proved that we are willing to work together to overcome our shared challenges.
Susana Martinez is the Governor of New Mexico