December 15, 2016

Projections show decline in state revenue

During September’s special legislative session, lawmakers agreed on fixes that added about $23 million in revenue. That was a start, but not nearly enough to solve the state’s budget crisis.

On Wednesday, state legislators received little good news about the state’s revenue stream during a committee meeting.

Even with that help, New Mexico’s bean counters dropped their revenue projections for the current fiscal year from previous estimates by more than $130 million. The state’s current fiscal year began in July and ends next June.

And things don’t look much better for the following fiscal year, which runs from July 2017 to June 2018. State officials have now dropped revenue estimates for that period by another $127 million.

“We clearly need to make significant changes to how we administer taxes in this state,” state Rep. Jason Harper, R-Rio Rancho and chair of the Revenue Stabilization and Tax Policy Committee, said at a committee meeting in response to the new projections.

The lowered revenue estimates, which come from the state’s Consensus Revenue Estimating Group, come at a time when the state is facing a current budget shortfall of $69 million. Projections for next year’s state budget have not yet been made, but another large budget deficit is expected.

State officials have blamed low oil and gas prices for New Mexico’s recent budget shortfall. They also pointed fingers toward the healthcare industry, which is one of New Mexico’s biggest employers, but remains, one state official said “largely untaxed.”

New Mexico’s unemployment rate of 6.7 percent, one of the highest in the nation, also doesn’t help.

“New Mexicans are working fewer and fewer hours,” Frank Crociata, director of tax policy at the state Taxation and Revenue Department, said while presenting the numbers. That means fewer people paying into the state tax system.

Mining jobs continue to decline, as do jobs in lodging, according to U.S. Bureau of Labor Statistics data.

Overall, the October employment numbers for New Mexico were down 0.3 percent from one year ago, according to numbers from the state Workforce Solutions Department. That marks a 2,900 fewer jobs across the state then exactly one year before

One presenter at the committee meeting spoke of an apparent silver lining: Forecasters don’t see a recession coming anytime soon.

“We are in one of the largest expansion periods in history,” Jon Clark, an economist with the Legislative Finance Committee, said at the hearing.

He was referring to the months of consecutive overall nationwide job growth that, albeit small and sluggishly, has occurred since early 2010. New Mexico has fared worse than most states with slower job growth and hasn’t fully recovered from the recession.

Historically, this means that a recession should be coming soon. But economic forecasters with IHS Global Insight, which the state uses for projections, see “no signs of an overheating economy or substantial impending shocks,” according to the latest written state Consensus Revenue Estimate.

Yet Michael O’Donnell, a research scientist at the University of New Mexico Bureau of Business and Economic Research, told NM Political Report last week IHS economists did not include a so-called “Trump factor” into their recent forecasts.

President-elect Donald Trump’s ambiguous proposals to overhaul the country’s international trade policies, for example, amount to what O’Donnell called “a high degree of uncertainty” in the state’s economic future.

The state’s general fund reserves, which lawmakers often tap when faced with budget difficulties, are also in bad shape. General fund reserves, which act as kind of a savings  account for the state, are in the red at negative-1 percent of recurring, or sustainable, appropriations that the state makes every year to fund things like highways and schools.

Generally, lawmakers try to keep reserves at 10 percent of state spending each year.

In total, the state is estimated to bring in  $5.6 billion during the current fiscal year while estimates for the next fiscal year total $5.9 billion in revenue.

Harper is expected to present ideas for overhauling New Mexico’s gross receipts tax code to help the revenue problems to the same committee on Friday.