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Governor Martinez Restores University Funds, Vetoes Taxes

Heath Haussamen / New Mexico In Depth

Republican New Mexico Gov. Susana Martinez restored funding Friday to all state colleges and universities that she had vetoed earlier by tapping money from suspended infrastructure projects, while rejecting a string of tax increases proposed by the Democratic-led Legislature.

The spending bill signed by the governor reinstates $745 million in general fund dollars to institutions of higher education that include university hospitals, medical research facilities, agricultural programs and schools for the blind and deaf.
It also restores funding for the upcoming fiscal year to the Legislature that the two-term Republican governor struck from legislation in April amid a standoff with lawmakers over how to resolve a budget crisis.
"It restrains government spending to live within our means — as our families do every day — and puts us back on track," Martinez said in a written statement. "I'm disappointed lawmakers once again tried to take the easy way out with hundreds of millions in tax increases."
Lawmakers from both parties have emphasized the need to rebuild the state's depleted financial reserves after New Mexico's credit rating was downgraded in October, raising borrowing costs.
To balance the budget for the fiscal year beginning July 1, Martinez signed legislation that suspends public works projects and uses severance tax bonds to bolster the state general fund, with some additional cash swept from other state accounts.
Plugging the deficit with $71 million in borrowed money will result in additional interest payments of about $9.3 million over the next 10 years, according to figures from the State Board of Finance.
Martinez struck down other revenue proposals from legislators that would have raised taxes on everything from internet retail sales to gasoline and diesel fuel.
Senate Majority Leader Peter Wirth called the approach irresponsible.
"The Governor's decision to fund government with one-time borrowed money is fiscally irresponsible," Wirth said in a statement. "By vetoing all the recurring revenue, the Governor has created a structural deficit, further threatened our bond rating, and put school classrooms and critical state services at risk in future fiscal years."
Adoption of a $6.1 billion spending plan ends a political impasse that many legislators had described as a constitutional crisis.
The governor last month rejected a variety of tax and fee hikes, while vetoing a total of $765 million in state spending.
Lawmakers unsuccessfully petitioned the Supreme Court to rescind the spending cuts that threatened to defund the Legislature, arguing that the governor overstepped her authority by virtually abolishing the legislative branch of government.
The high court declined to intervene in early May, saying the matter was not ripe for review.
New Mexico's government finances were hit hard over the past two years by a downturn in revenue from the oil and natural gas sectors. The state also struggles with a weak overall economy and has the nation's highest unemployment rate.
Lawmakers gathered this week in a special session to work out a compromise that offered the governor a long list of budget-balancing options.
Martinez and allied House Republicans insisted that any tax increases come attached to a broad overhaul of the state's gross receipts tax on sales and business services.
Democratic lawmakers on Thursday blocked a vote on that tax-code overhaul, saying not enough time was allowed to analyze a 430-page bill and respond.
Legislators in both parties feared the plan might unintentionally undermine tax revenues by wiping away dozens of tax exemptions, deductions and credits to lower overall tax rates. Legislation signed on Friday included $400,000 for an independent study of the reforms designed to lower overall tax rates.
"New Mexico will be watching to see if this becomes another government study that gets filed away only to collect dust," Martinez wrote.
The governor agreed to create a new state rainy day fund from oil and natural gas proceeds for use during future fiscal emergencies.
The fund is expected to gradually build reserves during above-average years for oil income. The Pew Charitable Trust has highlighted the strategy as a prudent hedge against volatile oil revenues that can reassure credit ratings agencies.
Some tax provisions vetoed by the governor would have paid for road maintenance and construction. Lawmakers sought unsuccessfully to delay scheduled reductions to the state corporate income tax rate.
Democratic House Speaker Brian Egolf criticized the governor's veto of a tax increase on nonprofit and government hospitals designed to bring more federal matching funds for Medicaid health care to New Mexico.