March 21, 2016

Despite silver linings, trouble looming for NM budget

Oil prices are tracking with the January projections but many other indicators show potential trouble for New Mexico’s budget situation.

iStock_000001334173_SmallThat was the news from Monday’s meeting of the Legislative Finance Committee, the first such meeting since the end of the legislative session. Taxation and Revenue Department officials were quick to mention that this was not another projection, but rather a review of January predictions.

The January projections had a sharp reduction in prices from previous estimates and resulted in a lean budget that relied on tapping reserves and sweeping money from various funds with the hopes that future revenues would be able to fill those holes.

Oil and gas

While oil saw the glimmer of good news with prices, the dropping drilling activity and even a winter storm put a damper on that news. And natural gas news remains uniformly bad, likely showing that major source of revenue will not rebound even to the modest January projections.

Drilling rigs are way down; the latest numbers said there are just 13 drilling rigs active in the state, compared to almost 100 last summer.

LFC director David Abbey described it as “A precipitous decline in drilling.”

Sen. Steven Neville, R-Aztec, outlined the problems with the large drop in active rigs; he noted that even if gas went up to $100 per barrel tomorrow, it would be six months to a year down the line before drilling and production would occur.

December and January production numbers were down, partially because of the weather, including a massive snowstorm that blanketed southern New Mexico in over a foot of snow.

Hector Dorbecker, an economist with the Taxation and Revenue Department, outlined another potential downside risk; companies that are cash-strapped could rush back into the market and drill, adding to the “glut in supply.”

This, he explained “would cause the price of oil to tank even further.”


When it came to jobs, there was also some silver linings, but mainly dark clouds.

The high-paying oil and gas jobs were drying up and Bureau of Business and Economic Research projections show employment in the industry could drop by over 12 percent by the third quarter of 2016.

Some of these lost jobs could be heading to construction, which BBER estimates say will increase by 3.8 percent in the same time period.

Overall in jobs, “the trend has been negative for more than a year in job growth,” Abbey said. He also noted some revisions for months last year were later revised down, meaning the situation is worse than originally thought.

The jobs that New Mexico still has, meanwhile, are lower-paying. New Mexico lags the nation in wages and salary growth “pretty significantly.”

Areas where New Mexico sees growth are in healthcare, education and tourism-related industries. Construction saw a very slight increase in employment.

Looking forward

Members of the interim committee remained cautious about the incoming money.

Sen. Howie Morales, D-Silver City, asked if the governor would be open to raising taxes if the budget situation does not increase; a representative of TRD declined to say for sure, but noted that Gov. Susana Martinez has consistently voiced opposition to raising taxes.

“At this point, where do we cut? Higher ed?” Morales asked. “Where do we cut, the courts?”

Morales said he wanted to speak to someone from the Department of Finance and Administration, but there was no one from the department available to answer questions.

Sen. Carlos Cisneros, D-Questa, said they should look at tax credits and possibly putting sunsets on them to make the budget for equitable.

Later, John Arthur Smith, the Democrat who heads the Senate Finance Committee, noted that in tax bills passed by the Legislature in the past, Martinez used her line-item veto authority to remove the sunsets.

“I think that’s perceived as a tax increase,” Smith said dryly.