Report from Santa Fe; Bill Fulginiti and Fred Nathan

The National Education Association of New Mexico, an organization of professionals who believe that investing in public education is an investment in our state's economic future. Hello, I'm Lorraine Mills, and welcome to report from Santa Fe. We're filming during the legislative session, and we're talking about one of the most important issues in the session this year. And as guests, we have Bill Fulgenetti, the Executive Director of the New Mexico Municipal League, and Fred Nathan, who is the founder and Executive Director of something called Think New Mexico. What is Think New Mexico? Well, thanks for having me back on the show. Think New Mexico is a resultorian to think tank. We're a little bit different than most think tanks. They're either way way over

on the left or way way over on the right. We just believe in a state that's 49th or 50th, and too many of these rankings, like hunger and poverty, that the focus ought to be on solutions rather than ideology. Yes. And Bill, the Municipal League, the title says it all, but how many cities, towns, and villages, are there, and who lives there? Lorraine, there are now 106 Incorporated Municipalities. Curtlyn is the latest one. They just, in San Juan County, they become live one July. They elected their mayor and council already. 66% of the state's population live in the signed incorporated boundaries. The two-thirds of the people in New Mexico live in our cities. Right. So you represent and you serve the cities. I know they call you whenever they have a legal question or insurance question or anything like that. But it is kind of sobering that two-thirds of our people live in this beautiful, real estate, live in cities. That's right.

Now, one other thing I want to say, we're filming in a tiny room in the capital. And I've invited you here because you both represent different sides of a really tantalizing and controversial issue, which is the reinstatement of the food tax. Some people go, it's a tax thing. It's too hard. I'm going to ask you to keep it very simple. Everybody eats here. Everybody buys food. So everyone has a stake in this. So even though I've pushed you together cheek by jowl, if you can just address the pros and cons, maybe one of you can first fall talk about the history of the food tax. Okay. Well, the food tax dates back to the Great Depression, Larry, in 1933. And back then, New Mexico, like many states, depended on property taxes for its revenue. And of course, during the Depression property tax plummeted. So we copied actually Mississippi, which was the first state to tax food. And in 1933, we passed a temporary emergency tax that included food and some other things. And it was a 2% tax. And in the intervening 70 years until

it was repealed, thankfully in 2004, it grew from 2% to over 6% in most places in New Mexico. And so we were the second state. In 1958, there was as many as 41 states taxing food. And now the trend is to take the tax off of food nationally. So now there are only two states that continue to fully tax food. Alabama and Mississippi, 14 states have a partial tax. And we're one of 34 states that have no tax on food, which includes Texas, Colorado, Arizona, and several more states in the list. Actually, there are six states that fully tax food right now. As of January 2015 or 2014, I just looked it up before I came over here. And Fred is right about the other part. There are 14 new tax at lower rates than the full state rates. So there's 16 total states that actually tax food

at this point. I think maybe, Lorraine, I, some one of us ought to start. I would like to start explaining what the proposal is because I think you start the other direction. And we're going to have to figure out why he's saying what he's saying for Fred is saying. So if I laid a groundwork, then he can jump in at one point. First of all, it's been called the food tax, but the bill is much bigger than that. We like to call this your bill. This is a bill we wrote. It's House Senate bill 274. Introduced today by Senator Jonathan Smith. Yeah, Jonathan Smith introduced that today is Senate bill 274. And actually, it is a whole harmless tax reform measure that includes a component of putting local tax rates back on food, not the entire state tax rate, just the local rates, which be anywhere from two to four and a quarter percent, depending on what city you live in. So it does not reinstate the state grocery seats tax on food.

It does not do that. We've been accused of trying to put the entire tax back on food. We're not. What we're trying to do is replace what is called a whole harmless provision that was granted to us. I always, it just stops me cold. What does it mean? Hold harmless. Yes, I would like to do away with that term, however, give me another term for it. It's, it's probably accurately describes what happened in 2004 when they want to repeal the tax on food, some food, not all food. The food basically was under the food stand program back then. We told a message we could not afford that. Cities live on the grocery seat tax 75% of our income comes from grocery seats to take food out of that base would take a large chunk of revenue away from cities that provide police and fire services. So back then we created a food deduction. If you're a food retailer, you would deduct from your monthly reports at the tax

department. The amount of food that's not not taxable. That would then go into the tax department. They would calculate the local tax rates on that number and include that check in your check for the groceries for the month. So that what you really ended up getting was even though the tax was taken off of food, we received an amount equal to it as if the tax were still on food. So they color the whole harmless provision. So, but this bill only is that's only one piece of the bill because along with that, we lower the state grocery seats tax from five and an eighth to five. The state compensating tax from five and an eighth to five. We also increased the working families tax credit by 22 and a half million dollars. That was a significant increase. It's currently 10% credit for those who people who qualify for the family tax credit. It will go to 14 of our bill where to pass. So that's a significant increase to help offset any tax that that

would be on food. And we'll get to that when we use some examples later. But we also repeal the three eighths grocery seats tax that was put in place two years ago under a house bill 641. When they repeal the whole harmless provision over a 15 year period, they give us authority to tax three eighths for cities and three eighths for counties. But those counties could tax inside cities. So what it is and what happened was then if they did it, you end up with a three quarter percent new tax grocery seats tax in the state. And it has happened in some places. 11 counties have already enacted this tax. It's covering 1.2 million new Mexicans effective July first. We'll pay new taxes. Okay. Well, let's stop there. It's just why we can hold that in your mind. In our minds, we're going to have Fred. Would you address the complexity of those many layers of taxes? It's not simply food tax anymore. Is it? No, but it's mostly about the food tax and just to reiterate the

food tax, which is, you know, fruits, vegetables, baby food, is a very regressive tax, meaning that it falls hardest on those who are least able to afford it. It's also on a necessity. And really, when you break this proposal down, what they're going to do is raise the food tax between two and four percent. So let's call it three percent. And they're going to lower the tax on everything else by one eighth of one percent. So to translate this into real terms, if you, under this bill, if you go to the grocery store and you buy a hundred dollars worth of groceries, you're going to pay three dollars in new taxes. Then if you go to buy a small screen TV say for a hundred dollars, you're going to have your taxes reduced by 12.5 cents or one eighth of one percent. So it's a great deal for my friend and for the cities and the mayors and the city counselors. I don't think it's a good deal for working low and middle income new Mexicans and those who are living paycheck

to paycheck who are going to have to choose between, you know, paying the rent check and buying their food. Actually, Fred, that sounds like it's a good story, but it's not the entire story. Because when you look at the bill as it's drafted, the working family tax credit itself distributed almost $50 million last year. So if people are using that family tax credit, we intend to add $22.5 million more. So a family of four in Albuquerque, the mother and father and two kids that are on the food stamp program would end up getting a benefit of $277 plus because they don't pay tax on food because they're on the food stamps. Let me finish. If you're a single mother with a child and you make more than 24,000 say, you know, just above the food stamp eligibility program, you still do not get hurt by this proposal because the tax you would pay on food is offset by the working family tax credit that they would receive and the reduction that the eighth

that you say is so little. But if you remember, it's on every other item they purchase, diapers, toilet paper, toilet paper, all the household necessities that they have to buy. Okay, if I can respond. First, let's take people on food stamps and bills are lying on a common misperception that people that are on food stamps pay no taxes on food when there was a food tax in place. Actually, the food stamp program, which is called SNAP, is the supplemental nutrition assistance program. Supplementals, the key word there. It was always designed to be a supplement to a family's food budget, not to replace it. So just so the viewers understand, people on food stamps in New Mexico get about $4 a day. That comes out to about a little more than a dollar 30 cents per meal. You cannot survive on that. So people that are on the food stamp program are still paying up to about 30 percent of their net income on food. So when there was a food

tax, they were paying it. In addition, about a third of the people that are eligible for food stamps never received them either because of pride or because of the bureaucracy. That's 130,000 new Mexicans, tens of thousands of children that if we restore the tax on food, they'll be paying it. Well, that's an interesting point Fred because it's only part of the story. As you talk about, I'm well aware that they pay tax on food above the SNAP program. In fact, that's why our bill reduces that tax. You have supported a tax in 2004 that increased tax a half percent on those very same people to pay for quote, taking the tax off of food. And then a lot of the legislature increased taxes again in 2010 for different reasons, but those people now paid another eighth. And in 2013, net can pay as much as three quarters per cent more. We're reducing. We're taking that away. I'm aware of what you said. We're reducing that tax. The bottom line bill is

that if you succeed with this bill, low income people are going to be paying taxes that they weren't paying before. And you haven't even talked about the middle class. And you don't have to be very wealthy to be just over that line for food stamps. Those people are going to get the full hit of this three or four percent that you want to put back on food. And you will qualify for the working family tax credit goes all the way up to $52,000. And let's talk about that. So this is a credit that you only get if you fill out, if you know to fill out a tax form. And of course, many of these people don't know any income tax so they don't fill out the form. They're not in the habit of doing that. So when we do this, when we put credits in place like this, those people have to know to fill out the paperwork. If they don't do it, they don't get it. In addition, when they do do it, they usually do it through one of these predatory lending outfits that take a high percentage of that money. So these credits that bill is talking about are wildly inefficient. The most

efficient thing to do is what the legislature has already done, which is to repeal the tax on food so that people get their rebate, what bill is proposing. Every time they shop and it's very efficient, they get it right at the cash register by not having to pay tax on groceries. So that means the tourist that comes here pays tax exempt on their purchase for food. You and I Fred purchased the prime rib for a hundred bucks. It's tax-free. A person from working poor buys hamburger and pays the tax maybe a little tax. You forget that we're giving $74 million back in tax credits currently. It is not something imaginary. Somebody's filing for these. $74 million is not insignificant. And we're out at $1.22 more on top of that. You're approaching $95 billion in tax credits to deal with this issue. Now, do you have a response to that? Well, you know, I'd just like to point

out this, Larry. If you look at our gross receipts tax system, and this is something where I think Bill and I can both agree, there are at last count about 338 exemptions for everything from ATVs to cigarette distributors. Do you have airplane mechanics too? Yeah, fuel. You name it. It's exempted. And I think we would both agree having served on tax commissions together that it would be better if our sales tax were lower and broader so that it fell more evenly. And we all shared in the sacrifice. What I don't understand is we've got 338 of these tax exemptions. But it seems like I'm in this game of extended lacomal because this comes up every so often. And this is the one exemption, the one on food that broadly helps working low in middle income people. But I want to propose to Bill that instead of taxing food that we look

maybe at some of those exemptions instead and lower the GRT overall and broaden it to more things. And Fred, I understand your point and you and I have talked about this before. Most of the tax credits have exemptions and deductions that are given are industry specific. They do not reach all 106 municipalities. They do not reach to 33 counties. They do not reach everywhere in this state. They are so specific. They would only benefit if you take those away. It only benefits a small area. They're not broad enough to cover the issue. So I've looked at a lot of those exemptions. Senator Sharers going to have a bill introduced already. He wants to take away all the deductions, all the exemptions including church and girls, girls and boys and girls. You think it's hard to pass something on food tax. Tax tackling those exemptions is going to be really difficult. I've looked at it. You have to have something broad enough to reach the all

part of the state. Now we're speaking today with Bill Fulton at the Executive Director of the Municipal League and Fred Nathan, the Executive Director of Think New Mexico. Let's just step back to common ground. I'm going to let you do your summaries about the food tax. But I want to thank you for your service in New Mexico. You both served on under Bill Richardson, the Blue Ribbon Tax Reform Task Force and you really looked at the overall, we do not have a good tax system. And in that task force, you came up with wonderful solutions which were unfortunately not implemented. So basically your philosophy of gross receipts has, because that's one of the things to maybe get rid of or even our very gross receipts system. Talk about where you agree about the tax system. And then let's look at what Tim Keller as state auditor will do. When he was a sanitary, he kept having these bills to look at all the tax expenditures, all those secret,

special interests, special interests, not secret interests, deductions that everybody gave him, maybe close some of those loopholes and start from a zero base. So what is your philosophy about taxing? I think you have that in common, but it should be. Yes, Lorraine, I think we have in common our concern about the system itself, whether you want to go to a sales tax system or keep it at a gross receipts system. The tax reform measures they're looking at today really are moving toward a consumption based tax. And that's much like a gross receipts or much like a sales tax, but without all the exemptions and deductions. So you can lower the rate. And when you do that, yeah, it's it's better for everyone. But some of those some of those exemptions are necessary, some of the deductions are necessary, going through those and identifying those will be a major work. And we've done them once before and we'll probably end up doing it again.

Unfortunately, I don't give that bill a chance of passage in the near future. And we're faced with the loss of our revenue starts this July. It doesn't start two years from now. It starts this July. And unfortunately, when when we are having flat budgets because, quote, corporate reform that past two years ago doesn't reach 106 cities, you can lower the corporate tax rate in this state. I haven't seen a corporation come in yet. And if they do, they're not going to come to all 106. They're going to come to very specific places. So we have to design something that reaches to all parts of the state and to cover those governments that have to work everywhere. And so when we do this, yeah, we could look at it to represent Taylor and Senator Sharers approach and we should look at it. But in a long haul, that's a very long range issue. It's not a short chase, not a short issue. We've been through this before. You know, I guess I would respond that we don't always have

to raise taxes when we have deficits. And I would just point to Mayor Richard Barry and Albuquerque who, according to the Albuquerque Journal, lost 2.2 million of hold harmless payments this year, has a shortfall of over $14 million. And he's not seeking an increase on the food tax or any other tax. And the other thing I guess we should point out here bill is that not every mayor and every city councilor agrees with the municipal league. Mayor Javier Gonzales right here in Santa Fay, a Democrat, is opposed to bringing back the food tax. I talked to Roswell Mayor Dennis Kintai, who used to be in the legislature, conservative Republican Javier's a liberal Democrat. They both agreed. They don't want to bring back the tax on groceries. So we shouldn't assume that the municipal league is speaking for all mayors and all city counselors. Actually, you may want to double back and have Javier one more time because I talked to Javier since then. And Dennis called me today and he does oppose it. But we're like, we're like a legislature. We have people go to our

conferences said policy. We were represented from each city. And when those, they voted 67 to one to support this. So when they go home now, not every city councilor on every city councilor, every mayor in a state is their voting. So they may not agree. But the bulk of the cities agreed over two-thirds of them. And I want to encourage you to ask your listeners to, you know, if they're interested in this issue, they should talk to their mayors and city councilors because sometimes there's a disconnect between what the constituents want and what sometimes our elected officials want. And it's I think important for those mayors and city councilors to touch base with their constituents. And I always think the citizen involvement is really crucial. But one of the things we have here is the optics of food tax. People think you can't you're taking food out of the mouths of hungry children and Lord knows we need to lead the nation and hungry children. So immediately people are just appalled that you could be doing that. And when you see the intricacies,

I know that Las Cruces last year in anticipation of this already raised their gross receipts taxes. So, you know, it's robbing Peter to pay Paul. It's again the optics of how can you be against, you know, feeding hungry children and the food tax. So I'm going to give you, we have some other things to talk about. But I want to wrap up the food tax issue, giving you each, if you can do it in 30 seconds or so, your pitch about why your position on this is right. Why it should be reinstated or why it should not be reinstated. Okay. There we go. Okay. Well, I would just say again that it's a regressive tax being a false hardest on those who least can afford it on a necessity food, fruits, vegetables, and baby food. And I don't think we want to go back and join states like Mississippi and Alabama, the tax food and put people in the position who live paycheck to paycheck between deciding whether to pay for the rent or or the foodstables. That's that's not exciting what the bill does. That's just a piece. This bill is good for business because it reduces the tax

rates from a potential 9% now and over 8% in cities. It reduces that tax rate. It reduces it as much as three eighths and in Las Cruces because that would be repealed. And as well as the eighth that we're repealing generally. So you're talking about a half percent in decrease immediately. And so we're talking about tax reform at the at the basic level. Reduction of taxes, broadening the base, lower the rate, and we get and handle the specific targeted assistance through the working family tax credit and low income tax credit. The numbers we ran show that they will not they will not be hurt by this. And for people, you know, I want one one final thing. I'm in favor of tax reform and I would agree that the gross receipts tax is broken. But Bill, you're trying to fix the one part of the system that works, which is not taxing necessities. All right. Now, I just want people people who want to find out more. You can go to either fixthefutax.org or thinknewmexico.org and you can write to your lawmakers and to your mayors and everything

and get involved because this is everybody has to eat. Okay, quickly the other thing that is killing us financially is health care. I think New Mexico has a is proposing that they do something called the Sunshine Portal for health care. That's exactly right. We don't have much time. This is the book that you can get from thinknewmexico. The health care issue is killing us all. What what are you trying to do here? Well, right now in New Mexico, Laurie, it's easier to get information about the price and quality of a toaster than it is about a common medical procedure. And all we're trying to do is create a public website where people can go to get information about the price and quality of the 100 most common inpatient procedures and any of New Mexico's 44 hospitals. And they can go to our website if they want more information about this. We hope to have a bill introduced tomorrow. How many states are already have the Sunshine Portal for health care? 14. Okay. It'd be nice for us to be in the group. Yes. Okay. Bill, you have some other exciting

things. What's happening in these for election rules and little tiny villages like we have 106 cities and 85 of those are very small. And election time goes up and people have to file for election. Unfortunately, we don't have enough people filing to run for office. So we may have enough to file for a ballot for one for each position. Then we have to go through the cost of running that election unnecessarily. And our commission manager forms are going, we don't have to do that. We want to piece the legislation and we'll make that available for all towns. Don't go through the very expensive cost of running election when you don't need to do that. Was it Tatum? Tatum is one of the ones that is $55 per vote to run their election and nobody ran. Why can we have municipal elections at the same in November with everything else? What stands in the way of that? A lot of times we looked at that having a jointly with the general elections in the primaries. The ballot gets so

unwieldy. The lines of jurisdictions of where you vote, how you vote. The schools have said the same thing and you walk into a polling place ago. I'm here to vote for a municipal election. Okay. That's a different jurisdiction over here and I don't know how they can do that yet. Until we get that done electronically, that would really be a difficult thing for city clerks or county clerks to run. You both have done so much for New Mexico. We have just one minute left. Can you give a shout out to our citizens? What do you think New Mexicans need to know about what's happening now briefly? You go first. Yeah. What they need to know about right now is how they're going to handle the state budget with a severe decrease in oil and gas revenues. They're down over $200 million. That means the pressure on this legislature to come up with a balanced budget and provide those services going to be difficult. They need to be involved and help

their state legislators how to figure out how to spend the money appropriately. We found something to agree upon because I totally agree with Bill on this issue which is that oil and gas issue overshadows every single piece of legislation, not just the budget, but everything. Yes. Well gentlemen, thank you so much. Our guest today are Fred Nathan, executive director of Think New Mexico and Bill Fulgenetti with the New Mexico Municipal League. Thank you both for all of you do. Thank you. Thank you, Lorraine. Yeah. And I'm Lorraine Mills. I'd like to thank you our audience for rastling with these very intricate but very, very important issues. This is report from Santa Fe. We'll see you next week. Past archival programs of report from Santa Fe are available at the website reportfromsatafe.com. If you have questions or comments, please email info at reportfromsatafe.com. Report from Santa Fe is made possible in part by grants from the members of the National Education

Association of New Mexico, an organization of professionals who believe that investing in public education is an investment in our state's economic future. And by a grant from the Healey Foundation, Tau's New Mexico.