Grabbing for gross receipts taxes
If you drive on public roads, depend on police and firefighters to respond in your time of need or simply expect your public library to be open, you may not worry about what pays for those services.
But when it comes to what makes a city, village, town or county run properly, a major source of funds to make it all happen are gross receipts taxes.
With a budget of $15 million, the county depends on about $6 million of gross receipts taxes annually to operate. The GRT in the unincorporated areas of Valencia County is 6.375 percent, the lowest in the entire county.
Nick Telles, acting county manager and finance director, said while the county doesn’t impose all of the additional local options it can, several have been enacted, including the County Emergency Communications and Medical Service Tax, County Health Care Tax, County Environmental Services Gross Receipts Tax and County Fire Protection Excise Tax.
Telles, who worked for the legislature as a fiscal analyst for about eight years before coming to work in Valencia County a year ago, says the county receives an average of $500,000 a month in gross receipts tax.
“The county gets remittances monthly, the distribution of gross receipts taxes,” Telles said. “The (business) will pay the state their gross receipts taxes, the state collects it, and depending on what (local options) we’ve enacted, (the state) sends it back to us.”
Telles explained that the state allows a county to impose local options for specific needs, such as the County Health Care Tax, which bankrolls the county’s indigent fund. The indigent fund helps those without health insurance pay for claims.
Throughout the state, county GRT rates are typically lower than those in municipalities. Telles suspects that is the reason most, if not all, counties in the state rely more on property taxes than GRT.
Enacting or renewing local options is the decision of the governing body, Telles said, and it depends on the political will of the members of the governing body.
“They have the power of the purse,” he said. “So they can decide when they evaluate budgetary needs if the total amount of revenue is sufficient to make the government functional. “They have the decision on if they’ll send the issue to the voters.”
While Telles doesn’t make the policy decisions, his primary role is to manage the resources the county has. The question of whether Valencia County has adequate revenue streams from taxation is up to the public and the commission.
One decision the commissioners will have to make next year is whether to implement a GRT to replace lost state funds.
When the Legislature eliminated the gross receipts tax from food, certain health care services and prescription drugs in 2004, they also realized that it would hurt cities and counties.
The passage of House Bill 641 this past year repealed the “hold harmless” provision to compensate for lost gross receipts taxes on food and prescriptions.
The hold harmless distributions come from the state’s general fund revenues and, 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 more than 10,000 people will be affected by the change. Besides Los Lunas and the county itself, no other local governments will lose their funding.
“Ultimately, the impact on the county will be about $1 million over the 15-year period,” Telles said. “We’re probably going to lose about $100,000 every year … from hold harmless.”
The bill that repealed the hold harmless funding does allow for a local GRT option of an additional three-eighths of a percent, Telles said. The tax can be implemented by local government without a public vote, and it can be less than the three-eighths, he noted.
“The Legislature did approve the three-eighths local option to make up for it, and it will have to be debated,” Telles said. “In this economic climate, we’ve had to learn and deal with doing more with less.”
With a population of nearly 15,000, the village of Los Lunas stands to lose about $1.6 million overall, or $112,000 a year, as the state weans counties and municipalities off the hold harmless funding.
Monica Clarke, the village’s finance officer, said while $112,000 might not seem a lot compared to the village’s $40 million annual budget, it will make a significant impact.
“Lawmakers didn’t intend for municipalities to make money on the hold harmless, but when they voted for the bill that we could enact a local option in January 2014, municipalities could actually make money,” Clarke said. “Municipalities would be implementing it early, but the state wouldn’t be deducting until 2015.”
Currently, the village is researching the local option and the council hasn’t decided to enact it. If the options is used before 2015, Clarke explained, it would be double taxation on businesses.
Gross receipts taxes are also very important to the village’s bottom line, said Village Administrator Greg Martin. The village is expecting more than $10 million this year, and hopes, with new businesses coming to Los Lunas, such as Applebee’s and a new pet store on Main Street.
The GRT in Los Lunas is 7.5625 percent, and of that, 37 percent comes back to the village, 11 percent goes to the county and 52 percent stays in the state’s coffers.
The village expects to receive an average of more than $800,000 in gross receipts each month during this fiscal year, totaling more than $10 million for the year.
“GRT funds different funds within the budget,” Martin said. “It funds the general fund, but we also have GRT that funds the infrastructure fund and the solid waste fund.
“Of this $10 million that we budget annually, a certain percentage of it goes to certain funds, and 54 percent of the total GRT goes to the general fund,” Martin said.
“So basically half the revenue received is GRT, and that funds general fund for personnel, operations and maintenance,” Clarke said.
The GRT in the Infrastructure Fund, Martin said, supports several projects within the village, and is often used to leverage grants from state and federal grants as matching funds.
This year, Los Lunas plans to make improvements to Los Cerritos Road, Carson Drive and safety enhancements to N.M. 47 and Appaloosa, which includes adding a median and turning lanes in response to a high-crash volume in the area.
Other projects the Infrastructure Fund will help include the N.M. 314 GAP project, Courthouse Road and the Interstate 25 interchange beautification, which the village acquired a $1.2 million federal grant to place decorative designs, landscaping, lighting and metal artwork. The village, through GRT, will match the grant with $400,000.
“GRT allows us to build a reserve so we can have matching funds and apply for grants for these project,” Clarke said.
“We have a great track record for applying for and receiving grants, partly because we plan ahead and have reserves available to match,” Martin said. “But also because, once we receive the grant, we follow through and get the project done.”
Clarke said the state of the economy has been felt everywhere, including the village of Los Lunas. In the ’90s, the village was forecasting an 8 to 9 percent increase of GRT revenue each year. Last year, the village estimated an increase of 3 percent, but this year they took a conservative stand, keeping the estimated amount of GRT the same as last year.
“We are definitely sensitive and conscientious of the economy and trends in the economy, and we thought it was best to have a conservative budget and start with a flat GRT,” Clarke said.
Martin said while GRT doesn’t support the village’s economic development efforts, the village is focused on improving the economic condition of the village so GRT will be enhanced.
“We get grants that support economic development and that department and we budget directly into the department, and we do various things to promote economic development, advertising shopping local campaigns and encourage people to spend money in Los Lunas,” Martin said. “It’s important to point out that some of those expenditures are also paid through other sources, such as the Lodger’s Tax.”
One of the most recent economic development projects the village is looking forward to is the Valencia Regional Medical Center being built on the village’s west side by Miller Architects out of Oklahoma.
And while the village won’t benefit from the GRT from health care services and prescription drugs from the hospital, they are looking forward from the GRT from the construction of the facility as well as the additional jobs and the housing needs created.
“We know, based on parenthetic evidence, that facilities such as a hospital, is an economic draw. It’s a regional facility that acts as a hub for economic activity,” Martin said. “It’s not just through the jobs created for the construction, but the jobs here long term that bring people into the community and spend their earnings on goods and services.
“It also acts as a catalyst for other economic development, restaurants and other medical facilities. There’s a spin-off effect of a facility that draws other business in the community.”
Because the town of Peralta is one of the smallest municipalities in Valencia County, its gross receipts tax revenue is not as fruitful as those in the larger villages and cities.
Julie Pluemer, the town clerk, said even though there are only 150 registered businesses in Peralta, the amount of gross receipts taxes they amass is the life blood of the fledgling town. The GRT in Peralta is 7.4375 percent.
Pluemer estimates the town receives between $50,000 to $60,000 in gross receipts a month, or $700,000 per year — less than Los Lunas receives in one month.
With a budget of about $1.9 million per year, the town clerk says the amount of GRT coming into the town makes up about one-third of the total budget.
“The remaining income is mostly from grants, street money, fire protection and EMS money,” Pluemer said.
The majority of Peralta’s GRT portion goes directly into the town’s general fund, not into local options like other municipalities. Pluemer said the town has never raised its GRT because they don’t yet have a wastewater or sewer system.
Some of the biggest projects funded through GRT in Peralta are road projects and street maintenance, which are the town’s biggest expenses.
“The roads are in desperate need of repair,” Pluemer said. “A lot of streets were not very well maintained by the county when the town incorporated. There are still a lot of gravel streets in the town that are not paved, and those that are paved are in need of being redone.”
Like other municipalities across the county and state, Peralta is required to “pitch in” a 25 percent match on many of the road projects needed in the town. Pluemer said the town has to plan for those types of projects in advance.
Even though the economic downturn has affected a lot of cities and towns across the county, Pluemer said the amount of GRT in Peralta has been steady. But it hasn’t increased either.
Pluemer said one reason she believes more businesses haven’t located in Peralta is because the town lacks infrastructure.
“With the economy being the way it is, and Highway 47 being a through-fare, any business such as a restaurant will have a high need for water and/or sewer,” Pluemer said. “We’re working on it, but it will be a ways away.”
The council recently approved a comprehensive plan, which includes a little about economic development, but Pluemer said the town isn’t really in a situation where they can recruit business growth.
“We would love businesses to come in, like a Walgreens or Tractor Supply, but we just don’t think they will with what we can offer right now,” Pluemer said. “We’re working on it, but we’re just not there yet.”
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