2022 Legislature Concludes: Money Cures All Ills

I am sad to report that NMBA President Lonnie Talbert has resigned his position, relocated to Jacksonville, Florida, and joined First Federal Bank as its Division President – Specialty Banking. The NMBA will miss Lonnie tremendously. Most recently, Lonnie received the Albuquerque Development, Inc. Chairman’s Distinguished Service Award. This award recognizes individuals making exceptional contributions to economic growth and prosperity in the Albuquerque metro area, and improving the region’s overall economic strength.

As noted in the AED presentation acknowledging Lonnie, “His 30-year career in the banking industry, in combination with his eight-year tenure as a Bernalillo County Commissioner, contribute to his inherent understanding of what people need and want in terms of quality of life and what businesses must have to operate successfully and profitably. He’s proven time and again that his driving goal is to make a positive difference in the lives of those in the Albuquerque area and beyond.”

Needless to say, the NMBA will miss Lonnie’s leadership, energy and commitment.

2022 Legislative Session Update

The 2022 thirty-day legislature adjourned on February 17 with some final-day fireworks. The Senate was subjected to a two-hour filibuster, resulting in the death of voting rights legislation. On that same day, in a total surprise to most, House Speaker Brian Egolf announced that he would not seek re-election, and Governor Grisham lifted the state’s mask mandate effective immediately.

As anticipated, the Governor signed the General Appropriations Act (HB 2). The legislature approved an $8.5 billion budget for fiscal year 2023 (beginning July 1, 2022), which represents a 14% increase over the current year’s budget. The budget bill raises compensation for all state employees, including teachers. The bill also increases the hourly minimum wage for state employees to $15 per hour. The state surplus account is at a meteoric high.

However, in a totally unanticipated move, the Governor vetoed a supplemental appropriation bill (SB 48) in its entirety. The bill called for a 33% increase in compensation for judges and authorized $50 million for projects and programs selected by individual legislators. For SB 48, house members were allocated $360,000, and senators were given $600,000. Most legislators were incensed by the veto and called for legislative leadership to convene an extraordinary session to override the governor’s veto. Ultimately, Governor Grisham called the legislature into special session on April 5, and the majority of the supplemental appropriations previously vetoed were enacted in a revised bill and approved.

A number of prominent bills that passed the 2022 Legislature and were signed by the governor were bills that had been considered, unsuccessfully, for several years. These included capping interest on small loans from 175% to 36%, a package of tax revision bills that include a one-time tax rebate, refundable child income tax credits, a small reduction in the state’s gross receipts tax, exemption of Social Security income from state income tax for all but the highest-income New Mexicans, and five-year income tax relief for military pensioners.

Bills Signed Into Law

• Capital Outlay Projects (SB 212): The Legislature approved $828 million for capital projects around the state.
• General Obligation Bonds (HB 153): The Legislature approved $258 million for projects for New Mexico higher education institutions, senior centers, and libraries. Unlike the capital outlay bill, these projects will be funded by general obligation bonds backed by property taxes and would require statewide voter approval in the November general election.
• Interest Rate Cap on Small Loans (HB 152): The new law caps the annual interest rates of small loans at 36%, down from 175%. The bill allows an additional 5% origination fee for loans of less than $500. Banks are exempt from the provisions of the bill.
• Affordable Housing (SB 134): The bill annually allocates 2.5% of severance tax bond capacity for the New Mexico Housing Trust Fund, administered by the NM Mortgage Finance Authority, to build, rehabilitate, and/or weatherize homes for low-income New Mexicans. It is estimated that $27 million will be available for the Housing Trust Fund in 2024.
• Tax Package (HB 163): This very important bill provides:
  • A refundable child tax credit of up to $175 per child for tax years 2023 through 2027
  • A one-time, refundable income tax rebate of $500 for married couples filing joint returns with incomes under $150,000 and $250 for single filers with incomes under $75,000
  • A five-year income tax exemption for armed forces retirees, starting at $10,000 of military retirement income in 2022 and rising to $30,000 of retirement income in the tax year 2026
  • A one-time $1,000 refundable income tax credit for the tax year 2022 for full-time hospital nurses
  • An extension of the solar market tax credit, worth 10% of the purchase and installation cost of a solar power system
  • A new gross receipts tax deduction for certain professional services, including legal and accounting, sold to manufacturers; this will help reduce tax “pyramiding” by about $5 million per year and make New Mexico businesses more competitive
  • Eliminates taxation on social security, saving New Mexico seniors over $84 million next year; the bill includes a cap for exemption eligibility of $100,000 for single filers and $150,000 for married couples filing jointly
  • Cuts the state’s gross receipts tax rate by an eighth of a percent starting July 1, 2022, and ramps up to a quarter-percent reduction on July 1, 2023, saving New Mexico businesses and consumers $200 million when fully implemented

In all, HB 163 is expected to provide about $400 million of recurring tax relief, benefitting all New Mexicans.

• Taxation Pass-Through Entities (HB 102): A major component of the federal 2017 Tax Cuts and Jobs Act was the $10,000 limit on the amount of state and local taxes an individual may deduct for regular federal income tax purposes. Currently, individual owners of pass-through entities report their proportionate share of business income on their individual income tax returns, and are subject to the $10,000 annual limit for state and local income taxes paid. These entities include S-corporations, partnerships, limited partnerships, limited liability partnerships, and limited liability companies. The bill provides a way for pass-through entities to avoid the effect of the state and local cap by allowing direct taxation at the entity level under the proposed entity-level tax instead of taxing the individual to whom the income is otherwise passed through under the State Income Tax Act or the Corporate Income Tax Act.

Legislation Not Approved

State Bank (HB 75): The defeat of the creation of a state bank was the number one priority of the NMBA this session. Fortunately, the bill was defeated in the first assigned committee. HB 75 would have created a tax-exempt public bank that would have had the authority to replicate the offering of bank services and products and potentially act as the state’s fiscal agent. We expect a similar bill will be introduced in 2023.

Fall Election

Senators do not come up for election until 2024. However, all house seats – as well as the governor and other statewide offices – will be on the ballot this year. Twelve house members, including Speaker of the House Brian Egolf, are not seeking re-election. Thirteen of the current Democratic House members and 10 Republican representatives have no opposition in the 2022 election cycle, nor do three candidates who have filed to replace retiring members. Thus, for 26 of the 70 House seats, incumbents/candidates will get a free, uncontested ride.

Legislators not seeking re-election include:

• Speaker Brian Egolf (D-Santa Fe)
• Rep. Zach Cook (R-Ruidoso)
• Rep. Jim Strickler (R-Farmington)
• Rep. Kelly Fajardo (D-Belen/Los Lunas)
• Rep. Debbie Armstrong (D-Albuquerque)
• Rep. Kay Buonkeva (D-Albuquerque)
• Rep. Daymon Ely (D-Corrales)
• Rep. Rebecca Dow (R-Truth or Consequences)
• Rep. Randy Crowder (R-Clovis)
• Rep. Phelps Anderson (R-Roswell)
• Rep. Karen Bash (D-Albuquerque)
• Rep. Georgene Louis (D-Albuquerque)