February 16, 2023

$9.4 billion budget bill seeks to turn ‘now money’ into ‘future money’

By Daniel Chacon, The Santa Fe New Mexican

The state of New Mexico has been enjoying the spoils of record-breaking fossil fuel revenues in the last few years.

But those years may be numbered, and a $9.43 billion spending plan the House Appropriations and Finance Committee endorsed Wednesday is designed to prepare state government for dips in the oil and gas industry and a future when production levels will start to decline.

The proposed budget for the upcoming fiscal year would increase spending by about $1 billion, or just over 12%, and put reserves at 30%.

House Bill 2 cleared the committee on a 14-3 vote Wednesday, with all three votes against coming from Republicans. While it spends about the same amount of money as Gov. Michelle Lujan Grisham suggested in her budget proposal, there are some significant differences between the two documents — the House proposal would spend less on child care and on the Opportunity Scholarship Fund that helps many New Mexicans pay for college.

The full House is expected to consider the budget Thursday. If approved there, it heads to the Senate.

While the proposed budget makes significant investments in education, economic development, health care and infrastructure, among other areas, it would also transfer $850 million to the Severance Tax Permanent Fund to turn what officials with the Legislative Finance Committee call “now money” into “future money” to address oil and gas volatility and long-term decarbonization goals.

House Bill 2 also would inject $100 million into the Water Trust Fund and $100 million into a new conservation trust fund.

Rep. Meredith Dixon, an Albuquerque Democrat who serves as the committee’s vice chair, likened the investments to depositing a bonus check from an employer into the money market.

“That’s exactly right,” said David Abbey, director of the Legislative Finance Committee.

“Except for one thing,” he added. “It’s better than the money market. You’re investing it long term to produce super returns above the money market return. All the better.”

Dixon said she appreciated the “strategic thinking” of investing one-time money “so that we are somewhat insulated from some of the volatility.”

Abbey said oil and gas, which generates about 40% of general fund revenues, is expected to peak in five to 10 years.

“We’ve got a few good years of perhaps growing revenues and growing production but then decades in the future of declining revenues and declining production, so … a partial theme of this budget is how to convert ‘now money’ to ‘future money,’ ” he said. “The budget growth is 12%. It could’ve been 20%. But instead, the proposals are to take recurring revenues and either use them for nonrecurring spending like capital or to put in these endowments, permanent funds, that will spin off revenues in the future” as oil and gas revenues will almost inevitably decline. 

The proposed budget calls for 5% average pay increases for all state government employees, plus targeted increases for various types of hard-to-fill jobs such as nurses, judges and district attorneys.

While Lujan Grisham’s executive budget recommendation proposes to cover the full cost of every educator’s health insurance benefits, HB 2 would increase the employer’s share of health premiums to match what other state employees are paying.

Maddy Hayden, a spokeswoman for the governor, wrote in an email the executive budget recommendation was “closely aligned” with the LFC’s proposed spending plan.

“We continue to work closely with House and Senate leadership to develop a budget that meets the needs of New Mexicans and supports the priorities that we largely share with the state Legislature,” she wrote.

Hayden raised concerns with HB 2, which would provide $120 million for the Opportunity Scholarship program as opposed to the $157 million the governor wanted.

“Unfortunately, the budget bill in its current form seeks to significantly underfund and change student eligibility for the Opportunity Scholarship which has already been established in law and would strip the scholarship away from 16,000 New Mexicans, bringing the progress our state has made on college access and affordability to a screeching halt,” she wrote.

The Lujan Grisham administration is committed to keeping the Opportunity Scholarship the most expansive tuition-free college program in the nation, she wrote.

“The governor’s recommendation of $157 million for the Opportunity Scholarship maintains the integrity of the program as it was established in law last year by members of both parties in both chambers and provides adequate funding for all eligible students to benefit” in the upcoming fiscal year, Hayden wrote.

Hayden also wrote that HB 2 is short tens of millions of dollars to provide child care assistance to New Mexico’s families relative to the governor’s proposal.

“This funding is critical to ensuring we can continue leading the nation in supporting families and children,” she wrote.

The spending plan provides about $300 million for a revamped approach to extended learning time in schools and $330 million for Medicaid provider rate increases of more than 10% to promote recruitment and retention of health care providers.

“It’s imperative we be able to recruit and retain doctors in the state,” said Rep. Gail Armstrong, R-Magdalena.

The budget also includes about $900 million in “special appropriations,” including $230 million for state and local roads. While the spending plan identifies specific road projects that highlight legislative priorities, the Department of Transportation will have flexibility to spend those funds on the most pressing needs.

Armstrong called developing the proposed budget a “huge lift.”

“It sounds ridiculous, but the really hard thing is when we have a lot of money,” she said. “It’s even harder because people come out of the woodwork asking for money and asking for raises and asking for increases.”

Sen. George Muñoz, D-Gallup, chairman of the Senate Finance Committee, told his colleagues Wednesday the bill doesn’t have a lot of “recurring capacity.”

“So as you hear agencies requesting money from you, just say, ‘The House spent it all, and you’re going to have to figure it out,’ ” he said.

In an interview, Muñoz said some state agencies are claiming they’re being underfunded in the proposed budget.

“But when agencies are funded above [the executive budget recommendation], I don’t know how they can claim they’re short,” he said. “We’re not going to be bluffed by expenditures that don’t have background and don’t have the staffing and skill level to fund them.”