Officials say the proposed state budget will force local governments to raise taxes or cut services

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FARMINGTON — A proposed reduction in hold harmless payments in Gov. Susana Martinez's proposed budget for fiscal year 2018 has San Juan County and city of Farmington officials worried.

Hold harmless distributions are given to cities and counties in lieu of revenue from gross receipts taxes on food and some medical services. The distributions began after the state exempted food and medicine from gross receipts taxes in 2004.

"At the time, I'm sure that was well meaning, and it was intended to help the poor," Farmington City Manager Rob Mayes said.

Mayes said that move did not actually help low-income people because the gross receipts tax increased on other items, such as clothes.

In 2013, the state Legislature voted to phase out the hold harmless payments over 15 years, and cities and counties throughout the state were given the option of increasing gross receipts taxes to make up for the loss of that revenue. Both Farmington and San Juan County chose to exercise that option.

The governor's budget proposal includes reducing hold harmless distributions to counties and cities that chose to impose gross receipts taxes to make up for the loss of hold harmless revenue. According to a press release from Martinez's office, the reduction in hold harmless payments will save the state approximately $9 million.

Martinez released her executive budget recommendation on Tuesday. A press release from the Governor's Office states that the proposal would close the current budget deficit without raising taxes. Officials attribute the budget shortfall to a downturn in oil and gas production. In a letter included in her budget recommendation, Martinez said the state was hit with the "steepest crash in oil and gas prices in our time."

In the press release, Martinez chided state legislators for not making similar cuts during a special legislative session last year.

“Lawmakers avoided making tough choices, but we have some time now to work together on a budget that restrains spending, doesn’t raise taxes, and protects the progress we’ve made on education, economic development, and public safety,” Martinez said in the press release. “How we address this budget challenge will determine the future of New Mexico for generations. If we abandon our reforms, continue growing government, and look to taxpayers to bail us out, we should not expect the bright future that is within our grasp.”

County Executive Officer Kim Carpenter said Martinez's proposal will force local governments to raise taxes instead of the state raising taxes. In addition to reducing hold harmless payments, Martinez's proposal calls for counties to increase their contribution to the county-supported Medicaid fund, which Carpenter said could lead to local tax increases.

San Juan County Commission Chairman Jack Fortner said the state and local governments are struggling trying to find money to close deficits.

"We understand that the state is in a budget crisis," he said.

He said the county hopes if hold harmless payments are ended, the Legislature will reinstate gross receipts taxes on food or allow local governments the ability to tax food. Mayes also expressed support for reinstating the gross receipts tax on food, which he said could lead to increased revenue for the state and eliminate the need for hold harmless payments.

Losing the hold harmless payments would mean a loss of $5 million for the city of Farmington and $2.4 million for San Juan County. Both Mayes and Carpenter said the loss of payments could lead to service cuts, employee layoffs or increased taxes.

Mayes said if the state Legislature ends hold harmless distributions, "we will be thrust into a very, very serious financial crisis."

Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652.

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