OFFICIAL PUBLICATION OF THE NEW MEXICO BANKERS ASSOCIATION

Pub. 17 2020 Issue 3

2021-Legislature

Executive Vice President’s Message: 2021 Legislature

The 2021 Legislature is scheduled to open at noon on January 19 for 60 days. The real question is, will the next session be virtual or live? As of now, the State Capitol is closed to the public, and many legislators and other public officials are predicting the next session of the Legislature will be virtual. For the first time in our history, the state capitol was closed to the public during the 2020 June Special Session due to the pandemic. The state Supreme Court upheld the Legislature’s decision to close the capitol to the public by a narrow margin, 3-2.

New Mexico is not alone in the decision of how to proceed with the 2021 session. According to the National Conference of State Legislatures, only 21 state capitols are open to the public. The remaining 29 state capitols are closed to the public. In New Mexico, the legislative committee’s webcasts and floor proceedings will be available to the general public. It is through technology that we will be able to testify as expert witnesses — not ideal by any means.

Economy

The number one issue before the legislature each year is the preparation and passage of the budget. Some good news came recently. State finance gurus recently announced an overall more positive outlook for the state’s financial forecast in June. Of course, there are many unknowns, including the timing and substance of a possible federal stimulus package and the economic impact of the spread of COVID-19.

Economists forecast an improved revenue outlook for Fiscal Years 2021 and 2022 versus the group’s June estimate. For Fiscal Year 2021, the September forecast revenue range is $460 million to $1.35 billion higher than the June estimate. For Fiscal Year 2020, revenues are tracking more than $500 million better than the June estimate. The improved revenue projection suggests total general fund reserves will grow to about 29.4% of recurring appropriations, or $2.1 billion, at the end of Fiscal Year 2020. Record-high reserves are an essential backstop to provide flexibility amid uncertain and difficult fiscal circumstances. Thus, New Mexico is in a good position to weather the current economic downturn and public health crisis.

2021 Legislative Issues

State Bank: We anticipate that there will be legislation introduced in the 2021 Legislature to create a New Mexico state bank. There have been attempts to authorize a state bank in the past — most recently in 2011. Some of the considerations which we have recommended the Legislature consider are:

  • Will any prospective benefits that come from a public bank outweigh the negatives? The potential risks of public banks are many, but a scattered business focus, lack of expertise in loan origination, undue political influence and lack of oversight are essential considerations. A public bank will not have the deposit insurance that consumers expect, meaning that their deposits would be protected not by the Federal Deposit Insurance Corporation (FDIC) but by taxpayers. The U.S. has nearly 5,300 banks operating more than 86,000 branches securing $13.5 trillion in deposits. The regulated commercial banking sector has a long track record of meeting the needs of small-dollar borrowers, consumer depositors and large-scale enterprises alike.
  • The Bank of North Dakota, a bank with approximately $7 billion in assets, is the only state-chartered public bank currently functioning in the United States. The bank was chartered in 1919 pursuant to an explicit and special chartering authority contained in the North Dakota Constitution that is implemented via a specific North Dakota state statutory authority. All deposits of the bank are guaranteed by the state itself and not by the FDIC. There have been no states that have followed the North Dakota model in 101 years.
  • Public banks may duplicate the current financial institution marketplace. There is no evidence that the current market is failing to meet consumer banking needs.

In fact, the state already provides many of the products and services offered by commercial banks through state government agencies and quasi-governmental agencies to include:

  • The legislature created the New Mexico Finance Authority to finance infrastructure projects for the state’s counties and cities and certain departments of state government. The objective is to provide low-cost financing for borrowers who might not otherwise be able to access the tax-exempt bond market on a cost-effective basis.
  • The New Mexico Mortgage Finance Authority is a quasi-governmental entity that provides financing to make quality affordable housing and other related services available to low and moderate-income New Mexicans.
  • The legislature created the New Mexico Small Business Investment Corporation to support small businesses throughout the state by providing equity or debt capital to finance expansion, creating and retaining jobs, and enhancing New Mexico communities’ economic livelihood by investing in local companies.
  • New Mexico Hospital Equipment Loan Council was created by the legislature to provide the health care industry with access to low-cost capital through tax-exempt and taxable bonds, loans and leases. Both nonprofit and for-profit health care facilities qualify for financing through these bonds.
  • The state treasurer provides banking assistance and services to state agencies by accepting money for deposit through the fiscal agent bank, processing withdrawals, reconciling all bank transactions and balances, and managing securities used as collateral per Federal Reserve requirements. The State Treasurer’s Office acts as the state’s bank and records the receipt and disbursement of all state moneys defined by statute as being in the custody of or payable to the treasurer.
  • The State Investment Council manages and invents the state’s Land Grant Permanent Fund and the Severance Tax Permanent Fund and also invests funds for other governmental entities.
  • Public banks may duplicate the current financial institution marketplace. There is no evidence that the current market is failing to meet banking needs.

Social Security Income Tax Exemption: Several bills are likely to be introduced to exempt Social Security retirement income from state personal income tax. New Mexico is one of 13 states that taxes Social Security benefits. That tax may be a red flag to retirees in deciding where to relocate for their retirement years.

Rent Control: New Mexico currently prohibits state political subdivisions and any home rule municipality from enacting ordinances or resolutions that control or would have the effect of controlling rental rates for privately owned property. A bill is likely to be introduced in 2021 to repeal that law. A repeal of that law was introduced during the 2020 Special Session but not considered.

Financial Literacy: A legislative recommendation making a class in financial literacy or personal finance a graduation requirement for New Mexico public high school students. Nationally, 21 states, not including New Mexico, have made a personal finance or financial literacy course a high school graduation requirement. Courses teach budgeting, saving, investing, credit scores and borrowing. Courses are often tailored to be relevant to students focusing on subjects like the cost of college and student loans. Since 2008, financial literacy has to be available as an elective course for high school students in New Mexico public schools. Only 10,722 of the state’s 97,076 high school students completed one of these classes during the 2019-2020 school year.

Cannabis Regulation Act: The 2021 Legislature will consider legislation to provide a comprehensive plan for regulation and licensing of commercial cannabis production and distribution, sale and consumption of cannabis by New Mexicans age 21 or older. The proposal will likely impose a cannabis excise tax applied to the price paid for cannabis. The standard gross receipts tax would also be charged on each transaction. It is estimated that the program may raise between $50-60 million for the state’s general fund.

Residential Evictions: We expect legislation will be introduced to provide that for the duration of a public health emergency as declared by an executive order promulgated by the Governor, and for 12 months after the termination of the executive order, no landlord may evict a residential tenant for failure to pay rent. A similar proposal was introduced and not adopted during the 2020 Special Session.

Small Business Recovery Act of 2020: Legislators enacted a law in June’s Special Session to create a $400 million loan program intended to offer low-interest loans to help businesses and nonprofit withstand the COVID-19 public health restrictions that shut down or restricted businesses. The law is due to sunset on Dec. 31, 2020. Senator Jacob Candelaria intends to introduce legislation next session that would extend the program through next year. He also intends to make several other modifications to the act to encourage greater small business participation.

John-Anderson

John W. Anderson,
Executive Vice President,
New Mexico Bankers Association

This story appears in Issue 3 2020 of the NM Bankers Digest Magazine.

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