Inside the Capitol

Wednesday, October 14, 2009

10-16 It Seems To Be Raining

Syndicated Columnist
SANTA FE -- Any agreement between Gov. Bill Richardson and legislative leaders about how to plug the hole in the state budget will be a last minute event.
A few weeks ago, Gov. Richardson presented a plan involving mostly one-time fixes to the anticipated $670 million deficit in this year's budget.
On Monday of this week legislative financial leaders came back with three scenarios of how they would like to do it. All of them were long-term fixes. On Tuesday, the governor said try again and narrow it to one proposal.
As this is being written, lawmakers are working on a modification. But there still is a huge divide between the parties' short and long term solutions. The fixes implemented by the 2009 Legislature last March used up most of the short term cash plus made some modest cuts.
The solutions from this special session are likely to sweep the corners of any remaining ready cash plus begin some painful cuts. In January, expect a focus on increasing taxes in areas that were cut in our more prosperous years.
One slight glimmer of hope might remain before the taxman cometh for more. Gov. Richardson and his finance folks have concocted something called sponge bonds.
The concept is obscure enough that googling it yields nothing but references to the current New Mexico proposal. The reason may be that no state other than New Mexico has a severance tax permanent fund.
That kitty was created back in 1973 when New Mexico was riding even higher than it has been the last several years. Not only were oil and gas prices high, so were uranium, potash, molybdenum, copper and coal.
After a few years of giving dribbles back to taxpayers, lawmakers decided to create a second rainy day account in addition to our Land Grant Permanent Fund.
Into that fund, they channeled the severance taxes collected on everything being severed from our earth. Later they decided to divert some of the revenue going into the fund for capital outlay projects in every lawmaker's district.
And they decided to lock up the fund itself by requiring a constitutional amendment to get anything out. But that still left the stream of revenue coming in from severance taxes as fair game.
At this point, about 88 percent of it is being used to fund pork projects with severance tax bonds. As severance taxes come to the state, they are used to make payments on the bonds.
Since the amount of severance tax income cannot be precisely predicted, money is not borrowed to the full extent of income projections. Any leftover money than goes into the Severance Tax Permanent Fund to be locked up forever.
The governor's concept is to sponge up that leftover money before it goes into the permanent fund. Every time that happens, instead of letting it get away, that exact amount of money is borrowed from the state treasurer.
The following day, the leftover severance tax money is used to pay off the sponge bond. And thus, money headed for a permanent fund is magically converted into money that can be used for the ongoing expenses of government. It might be called money laundering under other circumstances.
If lawmakers authorize this to happen every time extra severance tax money dribbles in, sponge bonds become a recurring source of revenue until the Legislature deauthorizes them.
The idea is controversial but one could argue that it is raining and before touching our rainy day fund, maybe we should use the money headed for that fund first.
Actually if voters were given the choice of an increase in taxes or tapping some money in our $3.2 billion Severance Tax Permanent Fund, which do you think we'd choose?
And remember, we also have an $8 billion Land Grand Permanent Fund backing that up. New Mexico likely has more permanent funds per capita than any other state.
FRI, 10-16-09

JAY MILLER, 3 La Tusa, Santa Fe, NM 87505
(ph) 982-2723, (fax) 984-0982, (e-mail)



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