December 5, 2016

State budget deficit at $69 million this year, could be higher next year

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Roundhouse

The latest update on the state’s budget situation was filled with negative news, including a large reduction from previous budget projections released in August.

The current year’s budget is projected to be $69 million in the hole.

For the fiscal year starting July 1, 2017, state budget experts project $300 million less money to spend than the budget in the current fiscal year—which itself saw massive cuts during the special session, with 5.5 percent cuts to most agencies.

The update, presented by experts from the Department of Finance and Administration and the Taxation and Revenue Department Monday morning to the Legislative Finance Council, comes a month and a half before legislators go back to work during a regular legislative session to deal with next year’s state budget.

During a special session in September and October, the Legislature plugged a $600 million budget deficit that encompassed last year’s budget and the current budget through a combination of tapping into reserves and making cuts.

The projections for future years show more likely deficits, including in the budget that legislators will craft in next year’s legislative session.

The state constitution requires the legislature to balance the state budget each year.

Oil and gas

It’s almost a broken record at this point, but TRD Secretary Demesia Padilla and DFA Secretary Duffy Rodriguez said the blame for budget issues lies mostly on a drop in oil and gas activity.

The industry woes impact not just direct funding through oil royalties and severance taxes, but also gross receipts taxes, corporate income taxes and personal income taxes.

Gross receipts taxes are down in Eddy, Lea and San Juan counties—three counties that depend on oil and gas extraction.

Unpaid personal income taxes and closing loopholes in some tax credits could offer a silver lining in future state funding, Padilla said at the hearing.

But Senate Finance Committee chairman John Arthur Smith, D-Deming, said the state needs more immediate money.

“We need now money,” he told the panel.

He said one reason that this year is different from past downturns is a lack of reserves.

“We don’t have reserves now,” Smith said. “The challenges are, how do we build reserves?”

Internet sales tax

Those looking for a quick fix from imposing taxes on internet sales similar to brick-and-mortar retail stores won’t see much of a relief. While such taxes would bring in an estimated $20 million in revenue for the state, Padilla said internet sales taxes can only be approved through a change in federal law, either by a vote from Congress or through a decision by the U.S. Supreme Court.

Padilla said that retail sales are starting to lag in the state partly because internet sale are doing so well.

Rodriguez, meanwhile, said already vetted ideas that did not become law in recent legislative sessions could get a second look in January.

One idea was moving some of the cash balances in public school reserves to the state general fund, leaving schools with between 3 percent and 5 percent in reserves, which could generate $120 million for the state. There are $253 million in those reserves currently, according to Rodriguez.

That could be part of the solvency package Rodriguez and others will be crafting in the coming weeks.

Employment

New Mexico’s lagging employment situation is also pushing down the state’s economy. While the state is seeing growth each month in the amount of New Mexicans employed, LFC chief economist Jon Clark said employment is not only not back to 2007 levels, but is even behind numbers in 2005. As of October, 866,000 New Mexicans were employed, compared to 871,000 in 2005.

He also noted that the amount of hours worked by New Mexicans who are employed each week has fallen in recent years.

In other words, fewer New Mexicans are working and for fewer hours than compared to a decade ago.

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