The House Appropriations Committee is poised to pass a budget that contains a plan to have all PERA and ERA active members pay an extra 1.5% of salary to PERA/ERA. The budget then calls for the employer (the state, universities, and school boards) to reduce its contribution to PERA/ERA by 1.5% of salary. Red ink continues to flow in Santa Fe, as new revenue estimates indicate a $600,000,000 revenue shortfall for next year. Even with stimulus funds taken into account, the word out of the House Appropriations and Finance Committeeis not good. It appears the committee is trying to make up most of the shortfall with federal stimulus funds and by cutting the half of the budget that is not public education. However, with a shortfall exceeding 10% of the total budget, this has become exceedingly difficult.
The Budget emerging from the House Appropriations and Finance Committeewill cut additional funds from public school support by shifting 1.5% of retirement contributions from school districts to employees! The funding is currently sent to districts for this portion of retirement would be cut from the budget. The argument from the House Appropriations and Finance Committeeis this: the money still belongs to employees by being deposited in the Educational Retirement Fund; any employee who does not intend to retire and draw a retirement benefit can withdraw the funds when they are no longer employed in public education. The House Appropriations and Finance Committeeleadership who met with NEA-NM and AFT NM leaders also made the case that these cuts were in lieu of possible layoffs in school districts.
House Bill 854, sponsored by Representative Saavedra, is a part of the budget package and will cut school employees’ and state employees pay by 1.5% for two years. House Bill 854 increases the employee contribution to the pension fund 1.5% and reduces what the state is paying into the pension fund 1.5%. The measure would take hundreds of dollars out of the average school employee’s pocket. The bill intentionally targets a select group of employees for a pay cut. We applaud the House and the Senate for balancing the FY09 budget without cutting essential public services. But we believe that we can only weather the recession and achieve fiscal stability through long-term revenue fixes. We urge lawmakers to make the right decisions and look to New Mexico’s tax structure to balance the budge and provide long overdue revenue fixes to the economy.There are about 20,000 state employees in PERA, 20,000 university employees in ERA, and 30,000 public school employees in ERA. The 1.5% pay cut amounts to approximately $42 million/year. It appears the committee is trying to make up most of the shortfall with federal stimulus funds and by cutting the half of the budget that is not public education. However, with a shortfall exceeding 10% of the total budget, this has become exceedingly difficult.
However, the House budget plan, to our knowledge, contains not one proposal to raise revenue other than asking public employees to pay money to the general fund.
In addition to being, on its face, a highly unfair targeted tax increase, the plan to dock workers 1.5% is a direct hit to the New Mexico economy. It targets New Mexico families and only New Mexico families. Further, the vast majority of the affected workers make between $15,000 and $70,000/year. These are working class and middle class families who spend the money they take in, helping to keep the New Mexico economy moving.
We think raising revenues is a better way to balance the budget. One method is instituting what is called combined reporting of corporate income taxes. Combined reporting is NOT a tax increase. This approach is contained in a bill carried by Senator Peter Wirth, Senate Bill 389. It is more closely described as closing a loophole, but even more accurately, it is simply a way of enforcing existing tax laws. This enforcement is predicted to capture about $70 million/year in taxes that are currently being hidden.
Over the last 20 years, national and multinational corporations have become more and cleverer about tax avoidance. One way for a national company to avoid paying their taxes owed is to hide or move profits made in a state with taxes on corporate profits (like New Mexico) to a state with no corporate tax (like Delaware).
There are many techniques that the big companies use to "hide" or "move" their profits out of New Mexico. A popular one is to create a Delaware shell corporation to "own" intellectual property, like the Geoffrey Giraffe character at Toys R Us. Then that Delaware shell corporation charges the New Mexico Toys R Us for the use of the giraffe, usually charging an amount similar to the profits made by Toys R Us in New Mexico.
So while a local New Mexico toy store that makes a profit of, say, $10 million/year pays taxes on that full amount of profit, Toys R Us, thanks to clever lawyers and accountants, might pay nothing even on the same profits.
There are dozens of variations on this tax dodge. Companies pay "rent" to themselves to shift profits overseas or to low- or no-tax states using Real Estate Investment Trusts. Companies have a fraudulent subsidiary sell inventory to real subsidiaries at inflated prices to make profits in states like New Mexico look smaller while profits in Delaware balloon.
The bottom line is that legislators could raise up to $70,000,000 to prevent the cut in public school and state employee pay without raising taxes on New Mexicans!
Additionally two other bills would raise funds for public schools:
Senator Cynthia Nava’s Senate Bill 412 would increase Gross Receipts Taxes by .75% and House Bill 346, has also been introduced by Representative Stewart in the House. This bill provides the new funding needed through a combination of repeal or recent high earners tax personal income tax cuts and a half percent increase in Gross Receipts Tax.
Our message to legislators:
Choose a new revenue source to use to balance the budget. Don’t single our public employees with a 1.5% pay cut to balance the budget.
Comments