Hold Harmless Tax :
Not being used
for what it
What is the “Hold Harmless” tax that some are talking about?
In 2004, the State made food and some medical expenses tax-free. Because of this, the State pledged to reimburse the cities and counties this loss of revenue through the State budget. However, in 2013 the State decided it could no longer afford to reimburse the cities and counties, essentially giving them an unfunded mandate.
House Bill 641 (Hold Harmless GRT), which was passed by the state legislature in the last 20 minutes of the session and many legislators did not even read, allows cities and counties to implement 3/8 of a sales tax in 1/8 increments effective July 1, 2013 in order to allow them to make up for this loss of revenue. Beginning July 1st 2015, the State will reduce the hold-harmless distributions (reimbursements) by approximately 6-7% every year and will be fully eliminated by 2030.
Three Republican legislators have publicly criticized the reduction of the Higher Education Building Sales Tax and the intent to implement 1/8 of the hold-harmless tax. Now they vow to punish the city should it be implemented. It is ironic that they will punish us for working within the laws they created - they set the rules and we play by them, now they want to change the rules. To the credit of Representatives Lewis and Harper, they voted NO on HB 641 although Senator Brandt voted YES. Ironically, Senator Brandt’s campaign promise to read the bills before he would vote on them, puts him in an odd position explaining his vote on this.
As a Councilor, I have to be proactive because with all government entities, they are slow to adjust. The City has already begun the process of accounting for this loss of the hold-harmless compensation from the State. Those who say we are “double-dipping” with the tax (even though the tax amount stays neutral), might need it explained in the form of a time-line to see the truth.
Should the voters approve the reduction of the Higher Education Building Tax by 1/8th and the Governing Body approves the implementation of the new 1/8th GRT dedicated to public safety, here is what will happen:
January 1, 2014 –The dedicated public safety tax will go into effect.
March/April 2014- We will start to see payments.
April/May 2014- FY 2015 budget developed, authorizing more policemen and firefighters, EMTs and Paramedics (subject to Governing Body approval).
July 1, 2014- The FY 2015 budget will take effect. New fire rescue and police personnel that are recruited would take about 8 -12 months to hire and train.
July 1, 2015- State hold-harmless reduction begins. New police and fire rescue personnel would begin benefiting the community at about the same time.
Simply put, by the time we have the first reduction in payments from the State, would also be the time the new firefighters and police officers would begin benefiting and serving the community. All the while, the citizens of Rio Rancho will see a net ZERO increase in sales tax before and after the reductions.
Other cities have already or plan to implement an actual increase in their GRT using the new hold-harmless option. Corrales increased all 3/8 in July 2013. Las Cruces is discussing it at their Aug 19th 2013 Governing Body meeting). Santa Fe and Farmington have already been looking at this option as well.
So how is the City of Rio Rancho preparing to adjust for this loss of revenue WITHOUT raising taxes? Through business growth, we will grow our GRT. The impact fee moratorium we imposed is already $1 Million ahead of expectations after 9 months. The Zoning Ordinance Change, The Sign Ordinance Change and sweeping changes to the Development Services Department have all been implemented in the last year to spur growth. In the meantime, we have already adjusted our future budgets to account for the loss of the hold-harmless compensation, and by the FY18 budget we have already accounted for a reduction of $843,093. Our unreserved end fund balance this year is expected to reach our goal of 15% (state requires 8.3%), which keeps us on a sound financial footing. Once we reach this 15% goal, I would like to start using that money toward expediting road repairs, improving our public safety department and other areas that have been neglected for years. We have the most award-winning Financial Department in the State of New Mexico, which consistently remains within 1% of their budget projections, and I am confident in their abilities.
A few additional things to consider:
1. We don’t increase gross receipts taxes when we are already higher than our competitors down the hill.
2. By keeping our unreserved end fund balance above the state-required minimum 8.3%, we avoid any obvious pitfalls.
3. By improving our public safety department now, we are getting ahead of our impending fire (ISO) rating review in 2-3 years. If left unchecked, we will be downgraded and consequently home and business insurance rates could increase significantly.
There are many voices shouting out in the crowd right now, making accusations and claims to support their friends in high places. Let’s not lose sight of common sense.