Senate OKs tax hikes on certain foods and cigarettes to balance state budget

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By Barry Massey

SANTA FE, N.M. (AP) — With time running out in the Legislature, the Senate approved a $5.5 billion state budget early Sunday that's balanced by reinstating New Mexico's sales tax on certain foods and increasing the cigarette tax.

The food tax will generate $138 million but it's expected to run into strong opposition in the House.

The Senate voted 23-19 to impose the gross receipts tax on a wide range of food products, including white flour tortillas, hard taco shells, candy and soft drinks.

New Mexico lifted its tax on food in 2005. The Senate proposal narrows the definition of food. It leaves products tax free if they are considered food under the federal Women, Infants and Children program. Supporters said it will encourage New Mexicans to eat healthier foods and could help reduce obesity.

"It is in effect a tax on salt, on sugar, on white flour and prepared foods," said Sen. Dede Feldman, D-Albuquerque.

The Senate approved tax measures to generate more than $180 million to balance next year's budget for public schools, colleges and government programs, including health care for the needy.

The Senate worked past midnight to finish work on the budget, which passed 25-17.

Senate leaders fine-tuned the financial package Saturday to line up enough votes in the fractured chamber to pass the budget package, which relied on politically painful tax increases and spending cuts for education and governmental services.

The Senate approved:

— A House-passed measure generating nearly $16 million by expanding tax withholding requirements on partnerships and certain small corporations. The goal is to improve tax compliance by out-of-state residents. It passed 40-1.

— An increase in the tax on cigarettes by $1 a package to generate $33 million. New Mexico currently imposes a 91-cent tax on a pack of cigarettes. With the proposed increase, only 15 states would levy a higher cigarette tax. The bill passed 24-18 and was sent to the House.

With the revenues from the cigarette tax, the Senate dropped a proposal that would have cut the take-home pay of state workers and educators by requiring them to increase their pension contributions.

Public employee and educational unions opposed the higher pension payments, which would have lowered contributions by governmental employers by $27 million and increased employee contributions by a similar amount.

The Senate-passed budget will lower spending by about 3 percent next year from what public education, courts, colleges and state agencies were provided this year. The upcoming 2011 budget year starts in July.

"We've tried to spread this pain but we can't cover all of our bases," said Sen. John Arthur Smith, a Deming Democrat and chairman of the committee that developed the budget. "This is not a fun job, but we have to have a balanced budget."

With the Legislature scheduled to adjourn on Thursday, the House and Senate will have little time to negotiate a a compromise budget and tax package.

A House-passed budget would cut total spending on education and government programs by about 1 percent next year. The House has approved $300 million in tax increases, including an upper-income surtax and a half-cent sales tax increase, to balance its budget proposal.

A special legislative session will be required later this year if the House and Senate fail to agree on a budget — as well as tax increases to balance the spending plan — before adjourning.

"That's the worst case scenario for us," said Smith.


The budget bill is HB2. The cigarette tax is SB30. The food tax is SB10. The tax withholding is HB120.