In 2004 a majority of the state legislature decided to eliminate the taxes on food and medical expenses. Sounded like a good idea to many. To accomplish this move the state increased the tax on everything by 1/2 a percent while removing the taxes on food and medical. The problem was that the tax on food and medical was a significant piece of local government’s budgets. So the legislature decided to hold the cities harmless and for the state to pay to the cities from the 1/2 percent tax increase on everything else what they would have collected had the food and medical tax remained. Many of us saw huge problems with all this (I love saying I told you so!).
The 1/2 percent tax increase on everything else is not generating enough to replace what is passed to the cities in the hold harmless agreement. With about a $125 million shortage. As the economy has slipped over the past few years, people are buying less but spending the same on food and medical. Also, the poorest of New Mexicans on food stamps got no discount on their food and everything else cost them more than before. This further exacerbates the problem and the state coffers are the loser.
Bottom line is the legislature passed a very flawed piece of legislation that was touted as helping the poor but in fact has raised their taxes and damaged the revenue base that pays their subsistence.