February 18, 2021

NM’s short-term economic forecast improves over last projections

New Mexico’s financial outlook has improved yet again.

While revenues are still expected to fall in the fiscal year that begins July 1, the drop won’t be as bad as predicted in December.

General fund recurring revenue for the upcoming fiscal year is now estimated to decline by 8.5 percent, an improvement over the 10.9 percent drop forecast just two months ago, according to updated revenue projections presented Wednesday to the Senate Finance Committee.

“The [fiscal year 2022] general fund recurring revenue is forecasted to grow by 4.9 percent compared to [fiscal year 2021], so the good news is … that there’s $339 million of new money,” Debbie Romero, acting secretary of the state Department of Finance and Administration, told the committee. “That is up from the $160 million that we talked to you about in December.”

While the “new money” will allow the state to maintain flat budgets for agencies, the majority of which reduced their spending by 4 percent in June, Romero and others said uncertainty remains.

Other risks to consider range from COVID-19 variants to executive orders issued by President Joe Biden to fight climate change. They include a moratorium on new oil and gas leases on federal lands, which generate more than 54 percent of the total oil and gas revenue the state receives, as well as a 60-day moratorium on approvals of new drilling permits and other regulatory documents.

“Our production estimates would have increased further had those federal orders not been enacted,” said Dawn Iglesias, the Legislative Finance Committee’s chief economist. “However, because of the uncertainty that those orders hold and the potential for them to have negative impacts on production, the current consensus estimate actually holds production estimates flat.”

Iglesias said the state was estimating an average oil price of about $38 per barrel in its December forecast. 

“We’re currently sitting at about $60 a barrel,” she said.

Romero said the ongoing battle against the coronavirus pandemic could affect the state’s revenue picture.

“We just don’t know what the COVID variants are and if vaccines will continue to be effective against those variants,” which could weaken consumer confidence, she said.

Romero said the state is worried about a delay or smaller-than-expected federal stimulus package. In all, New Mexico is expected to receive about $2.5 billion: $1.6 billion directly to the state and $841 million to local governments.

“The current proposed legislation makes distributions to state and local governments and allows funding to be used to backfill lost revenue, which the previous stimulus did not allow,” she said.

Market fluctuations in oil and gas, which brings in about 32 percent of the state’s revenue, is another area of concern, Romero said.

“We always consider the possible negative downturn of the oil industry,” Henry Valdez, a Department of Finance and Administration spokesman, wrote in an email. “That is why we must maintain high reserves for the state’s budget to help offset possible shifts in the supply and demand.”

Despite the uncertainty, at least one lawmaker expressed a sigh of relief with the updated revenue forecast.

“This is pretty good news considering the circumstances that we’re in,” said Nancy Rodriguez, D-Santa Fe.

Taxation and Revenue Secretary Stephanie Schardin Clarke said New Mexico is lagging behind the U.S. unemployment rate by about 2 percent.

“For the entire New Mexico economy, we are down about 65,000 jobs over one year prior,” she said. “Not surprisingly, the greatest number of job losses are concentrated in leisure and hospitality.”

Mining is down 7,200 jobs, she said.

While New Mexico has an 8.2 percent unemployment rate compared with the nation’s rate of 6.2 percent, Schardin Clarke said the state’s jobless numbers are projected to improve faster than expected in December.

“Moody’s [a national bond credit rating company] is now expecting us to regain our pre-pandemic employment level about two years earlier than was expected just two months ago,” she said.

Follow Daniel J. Chacón on Twitter @danieljchacon.