Budgets in Order to Address Term Paper

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125% to 6.0% would increase the estimated revenues by approximately $300 million, bringing this revenue to its highest level in history. This rate would still be lower than the state sales tax rate in neighboring Southwest states such as Arizona (6.6%), Texas (6.25%), Nevada (6.85%) and California (7.25%) (Sales Tax Clearinghouse, 2010). With this increase, personal income tax rates would not need to be increased. Corporate income tax rates would also remain the same, as they are not a significant component of general revenues. While the move to increase the state sales tax would prove unpopular, it would allow New Mexico to build for a more stable budget future, less reliant on federal transfers, while remaining competitive in terms of corporate and personal income taxes.

Appropriations will also need to be cut in order to save money. The main problem with appropriations in the budget is that a looming and unexpected shortfall triggers rapid cutting of appropriations with little strategic purpose. In addition to instituting 1-2% cuts in funding across the board (which will save between $50-100 million from the budget, the state needs to consider what services it will provide. The biggest budget areas are in Human Services, including unemployment benefits and medical assistance. Unemployment benefits should be reduced to reflect a reduction in federal transfer payments for this purpose. The current budget project shows an increase of 29.9%, or around $165 million, and this should be scaled back to around $100 million by lowering payouts, reducing the payout period and tightening controls on long-term unemployment benefits.

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Another area of significant increase in the coming budget that needs to be curtailed in the long run is education spending, specifically at the college and university level. Higher education spending should be reduced down to fiscal 2009 levels, which would save the state $137 million. Ultimately, while the state does gain some benefit from funding higher education, it is competing against private institutions for the same function. State funding provides an incentive to utilize state universities as a means of escape from the unemployment line, which is not as efficient as using education as a means of improving one's skill set. The state therefore should not dramatically scale up education spending in economic downturns. This increase therefore should be reversed.

New Mexico is facing significant budget challenges. The state needs to respond to these challenges with a combination of minor downward adjustments across the board in expenses, significant adjustments in major expenses where flexibility exists such as unemployment benefits and higher education funding and increasing revenues, primarily by increasing the state sales tax. Through this combination of measures, the state budget will improve by over $550 million, enough to balance the budget even in the event of continued revenue shortfalls, and without drastic cuts to most services.

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