Officials say the move is necessary as hold-harmless payments are phased out
FARMINGTON — City Council members are considering raising taxes for the first time in almost two decades to replace millions of dollars in lost tax revenue resulting from the state's plan to phase out its "hold harmless" payments.
The council is scheduled to discuss the issue at its meeting next week. Most councilors told The Daily Times that raising taxes will be necessary.
"You know, I just don't see any other way around it," Councilor Dan Darnell said.
On Tuesday, the council voted 3-1 to begin the process of adopting tax raises. Councilor Mary Fischer cast the sole dissenting vote, saying in an interview last week that the city has "fluff" to cut before raising taxes, which should be a last resort. Mayor Tommy Roberts didn't vote because he only weighs in to split to a tie.
Councilors are scheduled to discuss the issue at 6 p.m. during the Tuesday meeting in City Hall, 800 Municipal Drive. They are scheduled to vote on whether to raise taxes on Aug. 11. City officials say if councilors impose all of the tax raises on the table, the city's tax rate would still be lower than that of Aztec or Bloomfield.
Fischer was the only councilor who told The Daily Times she won't vote to increase taxes.
In interviews last week, councilors Darnell and Nate Duckett said they support raising taxes. In an email, Roberts said he also supports the move.
Numerous efforts Thursday to reach Councilor Gayla McCulloch were unsuccessful, but City Clerk Dianne Smylie said the councilor stated in a recent public meeting that she supports the proposed tax hike.
Farmington has not raised taxes since 1998, and city officials say recent legislation has put them in a bind.
In 2004, the state repealed gross receipts taxes on food and medicine. To help local governments compensate for the lost revenue, lawmakers approved a statewide tax hike to fund annual "hold harmless" payments.
But in 2013, legislators passed and Gov. Susana Martinez signed into law House Bill 641, which phases out the payments to the state's larger cities and counties over the next 15 years.
Legislative Finance Committee Director David Abbey told The Daily Times last August the hold harmless payments weren't sustainable.
The House bill also authorized local governments to implement up to three, one-eighth of 1 percent gross receipts tax increases to deal with the revenue losses. And that's what the City Council is considering.
San Juan County recently raised taxes to cope with the same situation and other revenue losses.
Farmington will lose about $388,500 this fiscal year, which is the first year of the phase out, but the loss compounds each year. Once the state completely ends the payments, which will happen in fiscal year 2030, Farmington's loss will be more than $5.8 million annually.
If Farmington implements two of the three tax increases, the city would receive nearly $4.9 million each year. All council members but Fischer support that approach. But still, according to city projections, that won't be enough to cover losses in 2020.
Local government officials lobbied the Legislature this past session to reinstate taxes on food and medicine, but those efforts failed.
Since 2006, the percentage of Farmington's tax base that would come from food and medicine, if they were taxed, has grown rapidly. In 2014, it made up more than 11 percent of the city's total gross receipts tax base. But the city can't collect those taxes, and the hold harmless payments intended to compensate for the lost revenue will shrink to nothing.
If the trend continues, by 2020, City Manager Rob Mayes projects the city would have received $6.6 million from taxes on food and medicine.
Councilors could also implement the third tax increment, which all of the councilors but Fischer say likely will eventually be necessary. But by 2030 Mayes predicts the city's gross receipts taxes from food and medicine, if they could be collected, would be $8.5 million. The third tax increment would net only about $7.3 million.
Roberts said efforts by lawmakers to reform the state's tax system have not been successful.
"It just gets worse as the Legislature tries to deal with it," he said.
If City Council opts not to raise taxes, another option would be to cut services and raise fees. According to a list of possible cuts Mayes prepared for councilors, they could potentially save more than $6 million if they approved a list of cuts and fee hikes that include the following:
• lay off 20 full-time employees at the Farmington Public Library;
• stop supporting Childhaven, the Family Crisis Center, People Assisting the Homeless and other similar services;
• close Red Apple Transit bus services;
• close the Farmington Aquatic Center and lay off 17 full-time employees;
• increase fees by 10 percent at the Piñon Hills and Civitan golf courses;
• and lay off 10 full-time crossing guards, 10 police officers and six firefighters.
Duckett said the new taxes could do more than help the city brace for revenue losses from phasing out hold harmless. For years, the city has deferred capital and service needs — Brookside Pool, for example, is open on a limited schedule for maintenance — and increased tax revenue could be used to help it catch up, he said.
"And you've got a lot of those 'Brookside Pools' through the city, so to speak," he said.