Republican Gov. Susana Martinez is looking at a maneuver once used by her predecessor, Democrat Bill Richardson, to end run the Legislature and selectively reject a tax increase that lawmakers approved.

Martinez is considering using her line-item veto powers to eliminate a $128 million tax increase on businesses in a measure the Legislature passed to keep the state's unemployment compensation program from running out of money next year, Martinez spokesman Scott Darnell said.

Taking that approach would allow the governor to stop the tax increase, which she's already promised to do, but preserve nearly $80 million in cost savings and benefit reductions that could improve the solvency of the unemployment fund.

It would be a high-risk move by the governor, who campaigned last year against raising taxes to fix the state's financial problems.

Democratic legislative leaders question whether the governor can legally make a line-item veto in the unemployment legislation.

Darnell said no decisions have been made.

"We continue to explore and consider all possible actions that can be taken in the near-term and in subsequent legislative sessions to ensure economic stability and growth in New Mexico," Darnell said in a statement.

Under the state Constitution, the governor can make line-item vetoes only in appropriations bills. The unemployment bill doesn't include the "making an appropriation" language typically found in bills that allocate money for programs and services.

But that didn't stop Richardson last year from making a line-item veto in a tax bill last year. He rejected a proposed food tax but signed other provisions into law, including a one-eighth cent increase in the gross receipts tax on goods and services.

Richardson contended that provisions of the tax measure appropriated money although the legislation wasn't labeled an appropriations measure.

Martinez has until April 8 to sign and veto bills that lawmakers approved during the final days of the legislative session.

When the Legislature adjourned, Martinez said she planned to veto the unemployment legislation because of the proposed tax increases. Business groups have urged her to reconsider because they worry taxes will go up even higher if the unemployment fund isn't replenished now.

Before agreeing to a tax increase, the administration wants to see if the economy improves and unemployment declines in the next several months.

If nothing is done, the unemployment fund is projected to become insolvent in March 2012 and the state might need to borrow from the federal government to pay jobless benefits.

Darnell has said the unemployment compensation issue could be added to the agenda of a special legislative session planned this fall if action is necessary to boost the fund in the next few months. The special session is to deal with redistricting but the governor can ask lawmakers to consider other matters.

Senate Majority Leader Michael Sanchez, D-Belen, and House Majority Leader Ken Martinez, D-Grants, said they don't believe the governor can use a line-item veto to reject the unemployment tax.

"My reaction is that probably would not be available as an appropriate line-item veto, and that if it did happen it probably would end up in litigation," Martinez said.

Unlike the unemployment bill, Sanchez said, last year's tax legislation contained provisions to change certain tax distributions and those involved the state's main budget account. That provided a legal argument for Richardson to claim the tax legislation appropriated money. No lawsuit was filed challenging Richardson's veto.

The unemployment bill will eliminate benefits for most unemployed individuals who are attending school full-time and reduce supplemental payments that jobless workers receive for their dependents. The legislation also will stop the state from offering extended unemployment benefits if the federal government doesn't cover the full cost.

Residents are eligible for jobless benefits for up to 93 weeks, with the state paying for the first 26 weeks and the federal government responsible for the costs after that — at least through the end of this year. If Congress doesn't agree to continue that financing and New Mexico doesn't change its law, the state will have to pay half the cost of extending benefits to 46 weeks. Eliminating that requirement will save New Mexico nearly $63 million next year.

Extended benefits are triggered if unemployment remains high over several months. New Mexico's unemployment was 8.7 percent in January — up from 8.1 percent a year ago.



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