A New Mexico business group is backing Republican Gov. Susana Martinez's proposal to shore up the finances of the state's unemployment compensation program, but the plan still faces trouble in the Legislature.

The governor is asking lawmakers to approve her proposal during a special session while lawmakers deal with redistricting. If nothing is done, the unemployment fund will run a temporary deficit of $40 million to $50 million by the end of the year, according to the Martinez administration, and the fund will be insolvent in early 2013.

The governor wants to avoid higher taxes. To accomplish that, she has proposed replenishing the unemployment trust fund with $130 million over two years — half of that by dipping into the state's cash reserves this year and then appropriating $65 million next year out of anticipated new revenues.

The Greater Albuquerque Chamber of Commerce said it supported the governor's plan for no tax increase on employers. "Right now the private sector needs to keep costs down and this proposal does it in a very important way," said Terri Cole, the chamber's president and CEO.

The governor's plan would keep current tax rates in place for two years and direct an advisory council of business, labor and others to recommend ways to the Legislature and the administration in 2013 for improving the financing system for unemployment compensation.

Earlier this summer, the state was paying almost $750,000 a year in jobless benefits. The recent economic downturn and high unemployment has drained the fund. There was a balance of more than $500 million three years ago, but it stood at about $132 million earlier in the week.

Under a current rate schedule, tax payments by a business average $325 a year for each of its employees. The required contributions vary for each business depending on its history of unemployment claims.

Earlier this year, the Legislature approved a $128 million tax increase on businesses to ensure the solvency of the unemployment fund. Martinez vetoed the tax hike while signing other provisions that trimmed jobless benefits.

A group of Democrats filed a lawsuit to invalidate the veto, but the state Supreme Court put the legal challenge on hold because the Legislature has an opportunity to resolve the unemployment dispute during its special session.

Under the vetoed legislation, average tax payments for a business would have increased to about $492 a year, an increase of $167 or about 51 percent from current rates, according to the Workforce Solutions Department.

"Avoiding a payroll tax increase at this time is really important for the health of the economy," said Finance and Administration Secretary Tom Clifford, an economist.

But lawmakers such as Sen. John Arthur Smith are troubled by the governor's proposal to draw down the state's reserves, which are projected to be about $491 million at the end of the fiscal year on June 30, 2012. The amount is equivalent to about 9 percent of state spending.

Lawmakers and the administration like to maintain reserves between 5 percent and 10 percent to provide a cushion for the state in case of unexpected drops in revenue collections.

"What really scares me is this is not money that we have in the bank. This is money we're forecasting. So it's a great unknown," Smith said of this year's projected reserves.

The Deming Democrat serves as chairman of the Legislative Finance Committee. He was concerned the economy may backslide, putting new financial pressures on state government.

Clifford contended that reserves will remain adequate — about 6 percent or $325 million at the end of this year — if $65 million is used for the unemployment fund and the state has to take as much as $100 million to cover an unexpected shortfall in Medicaid, which pays for health care for the poor and uninsured children.

Next year, the state expects to pick up nearly $370 million in new revenues. That can be used for budget increases, but the administration proposes to appropriate some of that amount for the unemployment fund.

Rep. Mimi Stewart, an Albuquerque Democrat, worried that state workers and educators will be put at risk if the reserves are used for unemployment. If reserves drop below 5 percent, a budget-balancing law will keep in place higher pension payments next year for public employees. Those higher contributions reduced worker take home pay but are expected to disappear next year based on the latest state revenue forecast.

Stewart contended the Legislature should pass the same business tax increase that Martinez vetoed earlier this year, but she doubts that any proposal, including the one by the governor, will be adopted during the special session.

"Frankly we don't need to pass either of them. We can have the Supreme Court take it back up again," Stewart said of the pending veto lawsuit, which asks the court to let the $128 million tax increase take effect in January.



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