The 2023 Legislature adjourned at noon on Saturday, March 18, having considered 550 House bills, 537 Senate bills, 30 Constitutional amendments, and 178 memorials during the 60-day session. The Legislature passed a total of 246 bills, plus memorials and resolutions — a considerably higher number than in the last 60-day session in 2022, but fewer than in most such sessions over the last decade. The governor had until April 7 to either sign or veto the successful bills. Of the 246 bills enacted in this 60-day session, the Governor signed 211 into law and vetoed 35.

This session was all about spending. There was $1.2 billion allotted for the state budget, $1.2 billion for capital outlay projects, $100 billion for a General Appropriations Act Junior, $1.1 billion for tax breaks, and $666 million for income tax rebates.

Money Bills

• HB 2 (State Budget Bill) funds most of the state government. The final budget bill increases the state budget by $1.2 billion over the current year for a new total of $9.575 billion. It provides for a 6% salary increase for state employees and fully funds the Opportunity Scholarship program that provides free tuition at state colleges and universities. Also, it increases the budget for public education by $226 million and Medicaid is increased by $224 million. This was important as New Mexico has one of the highest Medicaid populations in the U.S.
  
  
• SB 192 (Junior Appropriation Bill) provides additional appropriations, totaling $100 million (non-recurring), that allow each legislator to designate a certain amount of funding to projects of their choice.
  
  
• SB 505 (Capital Outlay Projects) appropriates $1.2 billion in non-recurring expenses to the general fund. We are using general funds in lieu of ST bonds. The surplus of non-recurring general fund reviews related to historically high oil and gas productions presents the opportunity to pay cash for 2023 capital projects rather than relying on bonding. Paying cash generates long-term savings by eliminating the cost of interest. There is also a provision (SB 378) that mandates an annual $92 million transfer from the STPF to GF over 10 years, an amount equal to the long-term debt service avoided by not issuing severance tax bonds for capital outlay in 2023.

Tax Package — HB 547

The Governor, on the last day for her to take action on legislation sent to her by the 2023 Legislature, line-item vetoed the majority of the tax package. She left intact:

• An increase in the Child Tax Credit for the lowest three income levels from $175 to $600, $150 to $400, and $125 to $200. The provision also adds language to annually adjust the credit amounts to account for inflation
• A temporary personal income tax rebate to be paid to all residents who filed state tax returns for tax year 2021 of $500 for single filers and $1,000 for married individuals filing joint returns.
• Expansion of the medical services gross receipts tax deduction to add all receipts from copayments or deductibles paid by a patient to a health care practitioner for commercial contract services provided under health insurance.
• Increase the benefits of the film tax credit, including raising the cap for films not shot by New Mexico partners, expanding subsidies for non-residents, and enhancing the benefit of filming in rural locations in the state.

Among those tax provisions included in HB 547, which were VETOED, include:

• Income tax brackets revised: Single filers with incomes below $66,500 and married filers with incomes below $100,000 will see a tax rate decrease (cost to the general fund is $155 million). VETOED

   

• Gross receipts tax: Reduced by a quarter-percent over four years (cost to general fund when fully implemented is $504 million). VETOED

   

• Corporate Income Tax: The tax bill provides for a single corporate income tax rate of 5.9%. Current law has two income tax rates: 4.8% for corporations making less than $500,000 and 5.9% for corporations making more than $500,000. As corporate income tax is a marginal tax, our corporations will experience an increase (cost is $7.4 million in revenue derived from corporations). VETOED

   

• Armed Forces Retirement Exemption: The bill removes the sunset on the armed forces retirement pay exemption currently in effect through 2026. With this change, the exemption would remain at $30,000 of retirement pay per armed forces retiree, beginning in the taxable year 2024. Surviving spouses of armed forces retirees were added to the exemption (cost to the general fund is $1.2 million). VETOED

   

• Index Social Security Income for Taxes: Currently, social security income is exempt from state income tax for individuals with income of less than $75,000 for married filers filing separately; $150,000 for heads of household, surviving spouses, and married filers filing jointly; and $100,000 for single filers. This bill would annually adjust the income caps by a ratio of the consumer price index, increasing the income levels by the inflation rate except in instances where the inflation rate would result in a downward revision. VETOED

   

• Apportionment of Business Income (Single-Sales Factor): Would replace the three-factor formula with an opt-in single sales factor. This is the ratio of sales in New Mexico divided by total sales in all states. It allows “eligible businesses” the option of retaining the three-factor formula or adopting a sales-only apportionment through the tax year 2028 at which time all businesses will shift to single sales. The assumption in this analysis is that all businesses will adopt an apportionment formula that reduces or maintains taxes, resulting in a negative impact on the general fund through corporate income taxes. After FY28, the fiscal impact is unknown as some businesses will pay more and others less corporate income tax when moved over to single sales. VETOED

There are 42 categories of tax issues addressed in the original tax bill. The cost to the general fund when fully implemented is $1.2 billion. However, by removing most of the tax changes from the tax package, the recurring cost will decrease to $150 million as of the 2024 budget year. It will gradually increase to $246 million by 2027 primarily due to the revisions to the film incentives. This does not include the one-time tax rebates which will cost the state $670 million.

Bank-Related Legislation

The good news was there was NO State Bank legislation introduced this session. However, the Governor did ask the Legislature to consider HB 414, which would create a Housing Department, a non-cabinet department in the executive branch. It would have been tasked with providing housing stabilization, homelessness prevention, transitional housing, standardization of housing services, and increasing the development of housing. It would exercise functions and administer laws pertaining to housing services currently administered by other state agencies and the MFA. The bill would have amended the Housing Trust Fund Act, which governs the NM Housing Trust Fund, to make the fund a non-reverting fund in the State Treasury and change the trustee of the fund from the MFA to the Housing Department. Monies in the fund would be appropriated to the Department. Bottom line, in time, the Department replaced MFA as the state’s Housing Authority. Fortunately, the bill DID NOT PASS.

I want to acknowledge the effort that was put forward by our bankers before the 2023 Legislature against the State Bank legislation. We prepared editorials against the state bank, appeared before interim legislative committees to testify against the state bank, and ran ads in major newspapers, pointing out what a bad idea it is. We also traveled in the Fall of 2022 and hosted Legislative/banking dinners and lunches around the state to discuss the NMBA Legislative agenda and the number one priority was NO state bank.

Other Relevant Legislation

• SB 216 (Homestead and Other Exemptions): The current law for homestead exemptions is $60,000 for a single person and $120,000 for married couples. The bill increases the homestead exemption to $150,000 for a single filer and $300,000 for married couples. However, the homestead exemption does not apply if the homestead property was pledged as credit for a mortgage or if there was a pre-existing lien on the property before the establishment of the homestead. The bill PASSED.
• SB 99 (Rent Control): The bill would have repealed the current prohibition placed upon counties and municipalities regarding rent control legislation. New Mexico is among 37 states that prohibit or preempt rent control. However, privately-owned property under contract for funding or benefits from federal, state or local governments may exercise rent control. The bill DID NOT PASS.
• Constitutional Amendments: Proposed Constitutional Amendments regarding legislative salaries and longer legislative sessions (60 days every year) were defeated. New Mexico is currently the only state that does not provide for legislators to receive a salary.
• SB 11 (Paid Family and Medical Leave): The most controversial bill introduced during the session, Senate Bill 11, would have established a 12-week Paid Family Medical Leave (PFML) benefit for nearly all workers in the state. The 12-week benefit could be taken intermittently and in increments of no less than four hours at a time. The bill would require employee contributions of 0.5% and employer contributions of 0.4% of wages into a PFML fund. The PFML benefit would be paid for with money in the PFML fund, with some of the money in the fund going toward administrative costs. The bill DID NOT PASS.
• SB 46 (Wrongful Foreclosure Protection Act): The bill would have enacted the Wrongful Foreclosure Protection Act which would provide new protections and remedies for homeowners facing foreclosure. The bill would require a new list of dates and amounts related to the underlying default. While most of the information is already obtained and reviewed as part of the foreclosure referral, there are requirements that could prove to be problematic for older defaults or files that have undergone multiple service transfers, such as listing “all instances in which the home loan was accelerated or in which the periodic payments owed on the home loan were demanded to be repaid at one” and “all instances in which the home loan was decelerated or in which the borrower or homeowner was allowed to resume periodic payments after a demand for repayment of the full amount of the home loan had been made.” The bill also restricts any “person” from making a misleading statement or omission of fact or law in a complaint for foreclosure of a home loan or in any motion for summary or default judgment filed when seeking foreclosure of a home loan. The bill provides severe civil remedies for each “discreet violation.” The bill DID NOT PASS but is likely to be reintroduced in 2024.
• HB 90 (UCC Revisions): The bill addresses emerging technologies, providing updated rules for commercial transactions involving virtual currencies, distributed ledger technologies such as blockchain, artificial intelligence, and other technological developments. The bill adds a new article to the UCC, Article 12, addressing certain types of digital assets defined as controllable electronic records. According to the bill, “controllable electronic record” means a record stored in an electronic medium that can be subjected to control pursuant to Section 55-12-105 NMSA 1978. The term does not include a controllable account, a controllable payment intangible, a deposit account, an electronic copy of a record evidencing chattel paper, an electronic document of title, electronic money, investment property, or a transferable record. The bill PASSED.
• HB 118 (Office of Entrepreneurship): The bill provided $500,000 to the Economic Development Department for the purpose of creating a permanent Office of Entrepreneurship. The office’s mission would be to grow entrepreneurship in the state by strengthening business policies, working with organizations supporting entrepreneurship, providing technical support for entrepreneurs, and providing access to public resources for entrepreneurship, including acting as a liaison between industry and state government. The bill was VETOED.
• HB 8 (Creative Industries Division in Economic Development Department): The bill establishes the Creative Industries Division within the Economic Development Department to support the full breadth of creative industries in the state, including traditional New Mexico crafts, visual and literary arts, software development and video game design, theater and entertainment, architecture, music, dance, culinary arts, and more. The bill was VETOED.
• SB 251 (Metro Development Act Changes): The bill amends the Metropolitan Redevelopment Code to expand on the tax increment financing (TIF) mechanisms for funding metropolitan redevelopment projects. The bill would allow a municipality or county to dedicate up to 75% of each entity’s local option gross receipts tax increment over the current adjusted base to fund directly or to bond for the construction or reconstruction of properties within the dedicated metropolitan redevelopment area. The bill PASSED.
• SB 26 (Excess Oil & Gas Funds to Severance Tax Fund): The bill reinvests some of the state’s oil and gas windfall into the Severance Tax Permanent Fund to help lessen any impacts to the general fund from future volatility in the industry. Beginning in Fiscal Year 2025, SB 26 will automatically set aside excess oil and gas revenues and send funds to the Severance Tax Permanent Fund. Doing so will allow those excess revenues to earn a projected average return of 5.7% in the Severance Tax Permanent Fund. The bill PASSED.