A gross receipts tax (GRT) is unlike a traditional sales tax in three ways: businesses are taxed instead of the consumer; gross income is taxed instead of net income; and services are taxed as well as physical products. You can think of the GRT as a sales tax on steroids that kills jobs. Furthermore, while only a handful of other states besides New Mexico have a GRT, no others are as comprehensive and/or as high as ours. So when our city council recently decided to raise the rate of our GRT even higher, the question becomes: Was it necessary?
The GRT was raised in direct response to the New Mexico Legislature’s recent repeal of the state’s Hold Harmless Act. Before repeal, this Act provided local governments such as Las Cruces with stipends/payments from the state for waiving the collection of certain taxes. According to city officials, the Hold Harmless stipend we received amounted to approximately 10% of the city’s operating budget and equates to millions of dollars; a significant loss of revenue. So, the decision to raise the GRT sounds reasonable…right? Not really when you examine the fine print.
You see, the state legislation did not mandate an immediate repeal of the Hold Harmless payments, but an incremental repeal over 15 years. In other words, our city officials must deal with an annual budget reduction of less than one penny on the dollar. This doesn’t sound too difficult. Any responsible head of a household could manage such a minor adjustment in their budget without raising additional income. But, apparently, our city government can’t. But that’s not all; the state doesn’t even start its generous phase-out of the Hold Harmless stipends for another two years. That’s right; our city council will not see a single Hold Harmless penny missing from its budget until 2015. Therefore, we will not realize the full 10% reduction in our operating budget until 2030.
This becomes even more upsetting when you listen to our city administrators explain why they needed to call an “emergency meeting” earlier this month to deal with this supposed crisis. While making it very clear we will lose “10%” of our revenues, they are strangely silent about the 17-year phase-out period. This is exactly what I encountered during a phone conversation with City Manager Robert Garza while he was a guest on the radio show Speak-Out Las Cruces. And soon after that, Mr. Garza doubled-down during an interview with the Sun-News’ Steve Ramirez: discussing the loss of revenue as a consequence of not immediately implementing the GRT rate hike, our City Manager boldly said, “…over a 30-year period could cost us probably closer to $50 million.” This is a preposterous and misleading claim that scares people unnecessarily. City Councilor Miguel Silva (our only council member to vote against the GRT tax increase) correctly characterized this entire episode as “bad government and politically motivated.”
In all fairness, when questioned about the state’s phase-out schedule of the Hold Harmless payments, our city administrators say they cannot trust the state legislators to do “what they said they will do.” In other words, our city council members believe the legislature could accelerate the schedule from 17 years to one year. I’ll admit this is a reasonable concern because I also find it difficult to trust government (although, I find it entertaining and ironic that our local liberal government does not trust our state liberal government). However, this argument is disingenuous because even if the state legislature reneges and takes away all Hold Harmless stipends next year, nothing would stop us from raising the GRT at that time. Furthermore, if we wait, there would be much more public support for the tax increase.
Lastly, I find it contradictory that while we are bemoaning the financial chaos our state legislature has put us in, and how we cannot afford even the most modest of cuts to our budget; Mayor Ken Miyagishima boasts about how Las Cruces pays an average total compensation of almost $67 thousand per city employee. Plus, according to City Manager Robert Garza, this compensation is above the International City Manager Associations’ benchmark for payroll expenditures. By comparison, Las Cruces enjoys a median household income of only $38 thousand, according to a 2012 U.S. Census Bureau report. So, while our local government is spending more money than necessary, they can’t seem to find a way to tighten our fiscal belt without raising taxes.
This November we have a chance to get rid of two incumbent city councilors who voted for the GRT rate hike. Gill Sorg (District 5) and Olga Pedroza (District 3) both seem enthusiastic supporters of the higher tax. Their opponents, David Roewe and Bev Courtney respectively, would no-doubt vote for government that is less greedy and more responsible. We also have a chance to put a more fiscally responsible candidate into the vacant District 6: Cecelia Levatino. If you are as upset about this tax increase as I am, this November 5th is your chance to vent.