County and Los Lunas to lose hold harmless funding in coming years

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Thanks to a last-minute tax bill passed in the legislative session, the village of Los Lunas and Valencia County must learn to do without millions of dollars in the coming years.

The passage of House Bill 641 repealed the "hold harmless" provision the Legislature enacted in 2004. The provision provided state funds to counties and municipalities to compensate for lost gross receipts taxes on food, medical prescriptions and some medical services, after the Legislature decided not to assess taxes on those purchases.

Nick Telles, the county's finance director, called the decrease and eventual loss of the hold harmless remittances "challenging."

The hold harmless distributions come from the state's general fund revenues. Starting in July 2015, they will be cut to zero over a 15-year period.

Only counties with a population of more than 48,000 and municipalities with a population of more than 10,000 will be affected by the change. Besides Los Lunas and the county itself, no other local governments will lose their funding.

While the funding cuts won't start for two years, Telles said the county is beginning to plan for the shortfall now.

Telles said according to reports and projections from the New Mexico Association of Counties, if the distribution continued to grow as it has in the past, at the end of the 15 years, the county will lose about $1 million annually in hold harmless monies.

"NMAC projected revenues to grow about 4 percent annually from here going forward," Telles said. "In 15 years, the remittance was going to get to about $1.4 million."

According to a report by New Mexico Taxation and Revenue published in July of last year, Valencia County was projected to receive $583,536 in distributions for the GRT lost in the 2012 fiscal year.

The rollback of the hold harmless funds will begin at 6 percent a year for the first five years, Telles said, then increase to 7 percent for the next 10 years, until all the remittance is gone.

"The commission has time to prepare, but it's in a difficult economic climate," he said.

Insurance, retirement and other costs are only increasing for the county, Telles said, and the state itself is coming out of a "big recessionary period. It's going to have to make a lot of big decisions itself. For a state our size, a budget of $5.3 billion is not a lot."

The bill that repeals the hold harmless funding does allow for a local GRT option of an additional 3/8 of a percent, Telles said. The tax can be implemented by a local commission or municipal government without a public vote, and it can be less than the three-eighths, he noted.

"It's the way the decision makers have decided to mitigate the pain," Telles added.

With a population of nearly 15,000, the village stands to lose about $1.7 million annually as the state weans towns and municipalities off the hold harmless funding.

The food and medical state support to the village for 2011-12 fiscal year was $1,692,699.

The village has not yet formulated a budget plan to compensate for the loss in revenue, but officials will start discussing this soon.

"It hasn't been discussed at the council level, so it's a bit premature to comment," said Gregory Martin, village administrator.

"Certainly, I expect we'll explore all of our options, including implementing the three-eighths percent local option tax, raising GRT in other areas, reducing spending … fortunately, we have a couple of years to figure it out."