Farmington official says tax increase was needed to offset loss of hold-harmless payments

• Hold-harmless payments are distributions from the state in lieu of revenue cities previously received from food and medicine taxes.
• Farmington increased its gross receipts tax in 2016.
• The state is phasing out hold-harmless payments.

FARMINGTON — If the city had not implemented two 1/8 of 1 percent gross receipts tax increments in 2016, a city officials says Farmington would have $3.9 million less in revenue at the end of December than it had in fiscal year 2009.

“Without that quarter percent, we’re down actually over 17 percent from 2009,” Administrative Services director Andy Mason said.

Mason presented a financial report about the first six months of fiscal year 2018 to the Farmington City Council during a work session on Tuesday.

Even with the tax increments the city implemented, Farmington is 7.5 percent — $1.7 million — behind where it was in 2009, he said.

The tax increments were implemented to offset the loss of money due to the phase-out of the so-called "hold-harmless" payments from the state. The city receives hold-harmless payments in lieu of taxes it previously received from food and medicine sales that were eliminated. The state allowed Farmington to implement three 1/8 of 1 percent tax increments to offset the loss. The City Council approved two of the increments in 2016.

Mayor Tommy Roberts said Farmington waited longer than many other entities around the state before it implemented the tax increases to “see if the Legislature would come in and fix the problems that we had identified.”

City Manager Rob Mayes said since the phase-out of the hold-harmless payments began in September 2015, the city estimates that $1.4 million has been phased out from Farmington alone. The hold-harmless payments will be phased out over a 15-year period.

“We really analyzed at what point the implementation of an eighth increment would be outstripped by the continuing cumulative impact of the loss of the hold-harmless payments,” Roberts said.

Roberts said the city will lose $45 million over the course of the 15-year phase-out of hold-harmless payments. He said the city determined that implementing only one of the 1/8 of 1 percent tax increments would generate $32 million to $33 million. He said the approximate $13 million difference prompted the city to implement the second 1/8 of 1 percent increment.

During the financial presentation, Mason told the City Council that the city’s revenue picture is looking better this year than last year. In the first six months of fiscal year 2018, the city of Farmington saw an 11.5 percent increase in gross receipts tax revenue compared to the first six months of fiscal year 2017, Mason said.

He said the city has seen a 166 percent increase in gross receipts tax revenue from the oil and gas sector.

Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at hgrover@daily-times.com.