A proposal to increase taxes to help pay for public schools took a hit Thursday, delivering a setback to efforts to overhaul New Mexico's educational finance system.

The House Appropriations and Finance Committee voted 9-7 against House Bill 346, sponsored by state Rep. Mimi Stewart, D-Albuquerque, which would have raised the state's gross receipts tax a half-cent, increased income taxes and increased the compensating tax rate in order to increase public-school funding.

The new formula itself was approved by the committee but will take effect only if legislation to fund it passes.

Now education advocates are resting their hopes on Senate Bill 412, a proposal by Sen. Cynthia Nava, D-Las Cruces, to seek just one funding source — a three-fourths percent increase of the gross receipts tax. The revenues from that increase would go directly to public school funding.

The push for a new formula comes from a study commissioned by the state that found public schools were underfunded by about 15 percent, or $350 million, statewide.

Nearly all 89 school districts would receive additional funds as the result of the new formula, and none would lose funding. Santa Fe Public Schools, for example, would get an additional $11 million the first year if the formula is passed.

This is the second year Stewart has sponsored legislation that would implement a new formula.

She said after the committee vote that while lawmakers may not want to raise taxes, she wonders what they plan to do for school funding in the future, especially in the face of budget deficits. "Are they going to cut education?" she said.

One of the loudest critics of the tax increases was Beverlee McClure, president of the Association of Commerce and Industry and former secretary of higher education.

She called the increase in gross receipts tax a regressive tax that hurts small businesses and impacts all people regardless of whether or not they have a job or how much money they make.

Rep. John Heaton, D-Carlsbad, said he had concerns about raising taxes when the "economy is in the ditch."

Stewart argued that people would be willing to pay higher taxes if revenues paid for education.

Stewart, in her presentation to the House Appropriations Committee, showed lawmakers a survey that showed support for Nava's measure. Nearly 60 percent of voters approved of the increase, while 36 percent opposed it.

The survey was commissioned by The New Mexico Education Partners, a group made up of teachers' unions and other school organizations.

Nava's bill passed through the Senate Education Committee — Nava is the chairwoman of that committee — with no recommendation and is assigned to the Senate Finance Committee.

The Associated Press contributed to this report.

Contact John Sena at 986-3079 or jsena@sfnewmexican.com.