City and county governments across New Mexico, including Santa Fe's, could face the need for public-employee layoffs and furloughs if a revenue bill that surfaced in the state Senate this week wins approval, a New Mexico Municipal League lobbyist warned Thursday.

Bill Fulginiti, executive director of the group representing municipal officials, was referring to Senate Bill 247. The legislation would phase out provisions of a law that kept local governments from taking major hits in their revenue when the state exempted food and medicine from gross-receipts taxes several years ago.

The bill was introduced this week by Senate President Pro Tem Tim Jennings, D-Roswell. The idea has been discussed for months as one way to deal with the state's projected $600 million budget shortfall.

Last year, the distributions to local governments cost the state nearly $121 million, according to figures from the state Taxation and Revenue Department. The food tax distributions accounted for more than $93 million of that total.

"This would be a drastic hit," Fulginiti said.

In a December interview, Santa Fe Mayor David Coss said the city's "number one priority" during this session of the Legislature would be to stop any attempt to end the distributions to local governments. Santa Fe, like other local governments, has been hit hard by dwindling tax revenues due to the global economic slump.

The "hold harmless" distributions to local government came about in 2004 when the Legislature voted to repeal levies on most food and medicine.

City and county governments opposed the repeal because they heavily depend on their share of gross-receipts taxes collected by the state. As a compromise, the Legislature included the provision to reimburse the local governments for that lost revenue.

"The only way they got (the food tax repeal) through was by agreeing to hold cities and counties harmless," said Carter Bundy, lobbyist for the American Federation of State, County and Municipal Employees. "It's really unfair to pull the rug out from under them now like this."

Gov. Bill Richardson's legislative liaison, Eric Witt, said Thursday that the governor was aware of SB 247. But, Witt said, Richardson is not taking a position on it at this point.

"He wants to wait for the whole budget packet to come up," Witt said.

Last year the city of Santa Fe collected nearly $10.3 million from the distributions to compensate for loss of taxes on food and medicine. Fulginiti said that amounts to about 14 percent of the city's budget. Santa Fe County's total was more than $3.2 million.

Under Jennings' bill, the distributions would be cut by 20 percent a year over a five-year period. The cuts would begin July 1, at the start of the new fiscal year.

Before the legislative session began last month, there was much public discussion of the possibility of restoring the gross-receipts tax on food. The Greater Albuquerque Chamber of Commerce was the main force behind that idea. However, many lawmakers from both political parties went on record as opposing the idea, and no bill to reinstate the tax on food was introduced.

SB 247 has been assigned to two committees in the Senate, Corporations and Finance.

Contact Steve Terrell at 986-3037 or sterrell@sfnewmexican.com. Read his political blog at roundhouseroundup.com.