SANTA FE, N.M. — New Mexico lawmakers are reluctantly returning to the budget negotiation table with Republican Gov. Susana Martinez as time runs short to restore billions of dollars in vetoed spending for the fiscal year beginning July 1.

The state Supreme Court on Thursday refused a request by lawmakers to rescind the governor’s vetoes of all funding for the legislative branch and state institutions of higher education.

A special legislative session is set for May 24. Elected officials will have to shore up anemic tax revenues or agree to a new round of spending cuts at state agencies or public schools.

Here’s a glimpse of what lies ahead:


TAX SHORTFALL

Lawmakers and the governor largely agree on a $6.1 billion state budget that would slightly increase spending, particularly for public schools and cash-strapped courts. They remain at odds over how to fill a roughly $150 million shortfall in revenues.

Lawmakers in March approved higher registration fees for interstate trucking and increased taxes for some hospitals, online sales and retail gasoline and diesel sales. Martinez vetoed the tax hikes and lambasted lawmakers.

The governor has vowed repeatedly that she will not raise taxes but startled Democratic lawmakers this week by announcing she was open to reinstating gross receipts taxes on grocery sales if it would help lower overall tax rates. New Mexico gross receipt taxes on goods and services currently vary from 5.1 percent to 8.7 percent by location.

Adding to pressures, the state’s cash reserves have been nearly depleted.


HIGH STAKES

State university presidents are urging a quick solution to the budget impasse that’s already frightening prospective students, sowing fear among employees and disrupting recruitment of medical researchers and physicians.

The budget vetoes suspend $745 million in state spending for higher education starting July 1 and many more federal dollars that pass through state accounts.

Without a deal by mid-June, borrowing costs for college construction would likely climb. Further delays would slash funding to a specialty school for the deaf in Santa Fe and a medical forensic lab in Albuquerque that helps solve crimes and stems outbreaks of serious illness.

Martinez has said she does not want universities to be hurt and has offered hints but scant details about a plan to restore funding for colleges, universities and the Legislature.

The vetoed funding for the state’s unsalaried Legislature pays for analysts, attorneys, clerks, office attendants and custodians. The $18 million annual legislative budget amounts to less than 1 percent of annual state general fund spending.

Leading lawmakers see that veto as an assault on the separation of powers between the executive and legislative branches of government. In practice, it could shut down a statehouse building that includes the governor’s office if no budget deal is reached by July 1.

Without an agreement by then, the Supreme Court still could intervene.


SOLUTIONS

The budget crisis is tied to a downturn in state income from the oil and natural gas sector, plus a stagnant economy in a state with the nation’s highest unemployment rate.

Martinez has less than two years in office and has tied her economic agenda to comprehensive tax reform that would eliminate hundreds of incentives in order to lower overall tax rates on gross receipts and improve the state’s business climate.

Lawmakers in the Democrat-controlled Legislature say the governor’s ambitious approach could unintentionally undermine tax revenues. They advocated for a gradual phase-out of tax breaks in a bill that was vetoed last month by the governor.

The governor’s approach also relies on restoring taxes on food that were eliminated in 2004 and decades-old exemptions on gross receipts taxes for nonprofits including hospitals and arts organizations.

Those two categories are the biggest potential revenue generators, according to Rep. Jason Harper, an architect of the plan.

But House Speaker Brian Egolf of Santa Fe has said Democrats will not support a food tax and that tax exemptions should remain in place for nonprofit groups that serve people who are poor or disabled.

The governor has offered short-term solutions to next year’s budget shortfall that would suspend state construction projects, leverage health care spending for more federal support and withdraw pension money set aside for unsalaried legislators.

Senate Finance Committee Chairman John Arthur Smith says those one-time solutions do not address the state’s continued dependence on oil and natural gas revenues to fund one-third of the state budget. The pension deductions likely would trigger a legal challenge by retirement fund managers.