By DANIEL J. CHACÓN
The Santa Fe New Mexican

Proposed 1% raises for state government employees that were stripped from New Mexico’s spending plan in House Bill 2 to fund other priorities found a lifeline Wednesday in an unlikely place: an omnibus tax package.

“When … our people are left out in the cold with their pockets not as full as they could be, we have to do something to make it right,” Rep. Derrick Lente, D-Sandia Pueblo, said before the House passed the tax package, Senate Bill 151, on a 43-19 vote.

The tax package has an estimated total capacity of $110 million, generated by “decoupling” New Mexico’s corporate income tax from a handful of provisions in the federal budget reconciliation bill President Donald Trump signed into law in July. The Legislature split the capacity in half, leaving each chamber to decide on roughly $55 million.

Key provisions of SB 151 developed in the Senate included a $10,000 tax credit for physicians, a refundable tax credit for local news organizations equal to 30% of annual wages, and gross receipts tax deductions for construction materials and labor used to develop affordable multifamily housing.

The push in the House to restore the 1% raises comes not just in an election year in which every state representative running for reelection will be on the ballot, but also as lawmakers ask voters to consider a constitutional amendment to provide salaries for legislators.

Members of the House also signed off on the Senate’s changes to the proposed budget bill Wednesday evening on a voice vote. With $11.1 billion in recurring spending, the proposal is the largest budget in state history. 

In addition to reinstating the salary increase, an amendment unanimously approved by the House Taxation and Revenue Committee on Wednesday morning before the floor vote renewed for 10 years a high-wage jobs tax credit that was set to expire and removed a Senate-approved gross receipts tax deduction on certain medical equipment and supplies after local governments raised concerns about a potential hit on their revenues.

“I’m so grateful for the House putting in this 1% back, to using our tax package towards this,” Rep. Cristina Parajón, D-Albuquerque, one of the lead proponents of the proposed constitutional amendment on legislative pay, said during the committee hearing.

During a news briefing before the floor session, Lente, chair of the House tax committee, called the Senate Finance Committee’s decision to remove the proposed raises from the House version of the spending plan “unfortunate.”

“It’s really our purpose here to make sure we take care of New Mexicans,” he said. “When that was stripped out, we had to find a way [to reinstate them], either it was going to be through the budget and coming back for reconsideration or we were going to do it in a more creative way, and this was that creative way.”

The chair of the Senate Finance Committee, Sen. George Muñoz, D-Gallup, defended the decision to cut the proposed raises from the state budget.

The state has spent some $1.3 billion since fiscal year 2022 on pay increases, equating to a 20.5% raise. The figure grows to $1.6 billion when factoring in employer health and pension increases. The state picked up a bigger share of employees’ health insurance premiums last year and plans to do so for public school employees in the current proposed budget.

“There’s critical needs that you have to fill, and you have to make the decision: Do we help people or do we give pay raises?” he said.

Muñoz said he wished he had the capacity in the state budget to pay for the proposed raises.

“I’m glad they put it back in,” he said Wednesday afternoon.

Sen. Carrie Hamblen, a Las Cruces Democrat who chairs the Senate Tax, Business and Transportation Committee, told members of the House tax committee during a meeting Wednesday morning she appreciated the reinstatement of the employee raises.

“I’m grateful,” she said. “I actually said, ‘I’m almost on the verge of giggling.’”

Rep. Patty Lundstrom, D-Gallup, complimented Lente for his work on the tax package during the committee hearing, including for adding the pay increase. She said it’s the first time she’s ever seen an employee raise put into a tax bill.

“But it’s a good idea,” she said. “I’m glad there’s some adults in the room here to make sure that employees do get a raise.”

Rep. Rod Montoya, R-Farmington, questioned whether the proposal would require approval from the House Appropriations and Finance Committee.

“We’ve never appropriated from this committee before,” he said. “This is extremely unique. I’m not even sure it’s proper.”

Lente said he consulted with others, including Legislative Finance Committee staff and the chairman of the House budget committee.

“It is a very unique situation, but unique situations call for bold decisions to be made,” he said. “Everybody is on board and finds this to be very much appropriate in regards to how we move forward with this being a very unique situation.”

House Speaker Javier Martínez, D-Albuquerque, agreed, saying “unique and potentially difficult situations call for creative and bold solutions.” He also said the committee’s “affirmative step to make those workers whole again” was commendable.

“To somehow say, ‘Well, you know, it’s just about 25 bucks a paycheck.’ Well, that’s 50 bucks a month. It’s a lot of money,” he said. “That’s a PNM bill for one of our workers. Maybe that’s a gas bill. Maybe it’s a cell phone bill.”

The tax package generated opposition from the New Mexico Oil and Gas Association, among others.

Ashley Wagner, the association’s vice president of government affairs, called SB 151 a significant tax increase on investment.

“By eliminating bonus depreciation and limiting interest deductions, this bill raises taxes at the exact moment companies are deciding whether to invest, expand or hire,” she said. “This bill may generate short-term revenue, but it does so by weakening long-term competitiveness and investment.”

Taxation and Revenue Secretary Stephanie Schardin Clarke countered the decoupling provisions do not constitute a tax increase.

“I want to point out that they are restoring the baseline level of corporate taxation that would have been New Mexico’s tax level before [the federal budget reconciliation bill] was signed on July 4,” she said. “I appreciate adding those back to the tax base, so that you as policymakers, alongside the governor, can prioritize New Mexico’s most pressing tax cut priorities.”

Senators will need to sign off on changes to the bill before it can be approved by the governor.

Republicans criticized the overhauled budget bill at length Wednesday evening. Rep. Alan Martinez, R-Bernalillo, questioned why with such a large budget, the 1% raises for state workers had to be “snuck in” a tax bill.

“Can you explain to me why we couldn’t find a 2.5% to 3% raise for the people that are going to have to execute the budget?” he asked.

Rep. Randall Pettigrew, R-Lovington, agreed.

“One percent was never going to sit there and change somebody’s life, but it does affect their morale,” Pettigrew said.

Rep. Rebecca Dow, a Truth or Consequences Republican, also faulted funding for New Mexico’s ambitious universal child care plan. While lawmakers plan to pull about $700 million from New Mexico’s roughly $11 billion early child trust fund for the plan — rather than from the general fund — Dow questioned whether not including richer families in the plan could have eased budget pressure. 

“If we had been able to maintain a copay … some sort of contribution from the most wealthy … would we have had money for the 1% or 2% raise, maybe even a 4% raise?” she asked.

Editor’s note: Gabrielle Porter of The New Mexican contributed to this report.