June 11, 2020

Guv, LFC unveil budget fix proposals

The Legislative Finance Committee and the governor’s office outlined the framework for the budget proposal that will be considered during next weekend’s special legislative session.

The consensus revenue estimate, put together by legislative and executive branch analysts, projected a nearly $2 billion drop in revenue from the December 2019 estimate that guided the creation of the budget passed earlier this year. 

The special session will begin on June 18.

The previous estimate projected the state would have $7.9 billion in revenue, but new estimates say that will drop to $5.9 billion in the coming year.

New Mexico, like most states, is required to have a balanced budget and not run a deficit.

The state is experiencing an economic crisis, as LFC Director David Abbey referred to the situation, because of plummeting oil and gas prices and the loss of gross receipts tax revenue because of the economic situation from COVID-19 and the response to slow the spread of the disease.

The LFC budget proposal includes drawing reserves down to 12 percent and “sanding” — or cutting — most general fund appropriations by 2 percent to 4 percent. The plan also calls for reducing the 4 percent across-the-board pay increases by 3 to 4 percentage points so that it would cover higher costs for insurance and other benefits and not result in a pay decrease for employees. The pay raises could potentially be eliminated completely.

The governor’s proposal only called for a reduction of 2 percent in pay raises, but would also leave the state with 12 percent cash reserves. 

The state hopes to stop what happened in 2016, when the state exhausted its entire reserves 

The LFC proposal also calls for using $1.25 billion in federal funds, including from the CARES Act, to replace some general fund spending. This would assume that federal guidance would allow the state to use some of the CARES Act funding could be used for this purpose.

The state will also revert some funding from capital outlay projects that have not moved forward.

“It’s going to be all-hands-on-deck,” LFC Deputy Director for Budget Charles Sallee told legislators, referring to using reserves, budget cuts and more actions to address the budget shortfall.

According to the Albuquerque Journal, the governor said that the special session is “probably not the format” for tax increases or other efforts to raise revenue.

These discussions would likely take place in the regular legislative session in January.

Even with the state plugging the holes in the upcoming special session, legislators may need to make further changes in the regular session in January, Senate Finance Committee chairman John Arthur Smith, D-Deming, warned.

“There’s a whole lot more work there’s going to have to be done in January and some heavy lifting is going to have to be done in January to stabilize revenues,” he said.

Smith lost his primary last week and will not return to the legislature next year. 

Another member of the Senate Finance Committee also warned that this was only the beginning.

“With even moderate recovery, we may still be in a bind when it comes to the [Fiscal Year] 22 budget,” Sen. William Burt, R-Alamogordo, said.