FARMINGTON — Last month, Farmington Mayor Tommy Roberts talked about the possible need to increase taxes after state lawmakers decided to roll back the "Hold Harmless Act."
The Hold Harmless Act allows New Mexico residents to purchase food and prescription drugs and pay some medical expenses tax-free. Counties and municipalities have been compensated for the gross receipts tax loss by the state. But a bill passed in the recent legislative session will phase that compensation out over a 15-year period.
However, the new law also allows cities to increase their general receipts tax in three, one-eighth of 1 percent increments.
Roberts said raising taxes is not a option Farmington would like to impose on consumers.
"We are proud of the fact that we have a low tax rate," Roberts told members of the New Mexico Legislative Revenue Stabilization and Tax Policy Committee when it met in Farmington in early July.
During a 12-slide PowerPoint presentation, Roberts showed the effects on Farmington of phasing out the compensation, while raising taxes at the same time.
Beginning in fiscal year 2016, Farmington's budget will be reduced by about $388,000, and implementing a one-eighth of 1 percent tax increase would add about $1.9 million to the city's budget.
However, as the compensation from the act decreases, Farmington would increasingly find itself making up for the lost funding. With the one-eighth of 1 percent tax increase, Farmington would have to make up $348,274 for the annual city budget in fiscal year 2026, and the amount increases to more than $82 million by year 2050.
A provision of the act allows for municipalities to raise taxes to compensate for the loss by one-eighth of 1 percent increments three times in 2015, 2018 and 2020.
"We are trying to maintain a lower tax rate and maintain a low tax base. It's going to be a hard decision for our city council to implement a one-eighth tax. That'll be just to maintain our services," Roberts said.
According to a graph in his presentation, if Farmington increased taxes by three-eighths of 1 percent, the city would have $59 million excess after budgetary needs and after the Hold Harmless reductions in 2031, the year after the reductions are expected to end.
But Roberts said Farmington has historically kept tax rates low, which increases competition for businesses and makes Farmington an attractive place for new businesses.
The last time Farmington raised the gross receipts tax was in 1998, he added.
In a comparison with other New Mexico cities, only Albuquerque and Roswell have lower gross receipts taxes. Farmington's tax rate is 7.1875 percent.
San Juan County has the same option of increasing gross receipts taxes by one-eighth of 1 percent in three increments. If the county implemented all three increases, the tax rate for Farmington would be 7.9375 percent, ranking as of one the highest gross receipts tax rates in the state. Ruidoso has the highest tax at 8.625 percent, according to Robert's presentation.
Roberts also said the decline in oil and gas production hurt the city's finances, and San Juan County Executive Officer Kim Carpenter agreed.
"The biggest thing has been a big decline in oil and gas revenues," he said during the same meeting.
Carpenter spoke about the county's perspective regarding the Hold Harmless Act.
"Over the last five years, San Juan County has done a lot of work in reducing budgets," he said.
He added the county also faces a serious decline in tax revenues.
He explained Four Corners Power Plant and San Juan Generating Station both have plans to shut down units, and Navajo Mine is now exempt from taxes since it is owned by the Navajo Nation, all of which will hurt the county's tax base.
The county expects to lose about $1 million in property taxes because of the coal mines and power plant changes, he said.
"That is a very damaging hit. Two power plants and two (coal) mines are four of largest tax paying entities in the county," he said.
He said the county is continuing to look for ways to be more efficient.
"We are looking at every possible nook and cranny, how we can better utilize our funds." Carpenter said.Erny Zah is The Daily Times business editor. He can be reached at 505-564-4638. and firstname.lastname@example.org. Follow him @ernyzah on Twitter.