Governors don’t usually sign a budget twice in one year. But this is no normal year. Gov. Michelle Lujan Grisham gave her blessing to New Mexico’s revised budget legislation Tuesday, but she also used her veto power to cancel some of the cuts legislators approved during the special session. “We must recalibrate our state’s budget to meet these challenging times,” Lujan Grisham wrote in a letter to the state House of Representatives upon signing House Bill 1. “However, we should not lose sight of the important work that is still needed to create lasting opportunities for all New Mexicans.”
The budget plan uses a combination of spending cuts, reserves and federal funding to deal with a projected $2 billion drop in state revenue for the next fiscal year, which begins Wednesday.
Analysts told lawmakers projections show New Mexico will have $1.1 billion in “new money” to spend compared to last year. But they also urged caution on how to spend that money, given the state’s reliance on volatile oil and gas revenues and the need to replace the money legislators used money from various state programs in recent years. Members of the Legislative Finance Committee, which hears regular budget updates throughout the year, were briefed on the numbers from their chief economist and members of outgoing Gov. Susana Martinez’s cabinet. The sky-high budget numbers were slightly lower than the August forecast, but still much higher than the state has seen since 2005, before the Great Recession of the late 2000s. The budget boom doesn’t necessarily mean that legislators will fund new recurring programs.
Committee chairwoman, and House Appropriations and Finance Committee chairwoman, Patty Lundstrom, outlined in the most-recent LFC newsletter where the money would likely go.
An oil and gas bonanza in Southwestern states may be helping to drive the continuing national economic boom. The nation’s 4.2 percent growth in GDP, estimated last month by the Bureau of Economic Analysis, is the highest quarterly growth since 2014. State estimates aren’t due until mid-November, but many experts see oil and natural gas drilling, driven by higher prices, as a leading reason. “The states that contribute most might be the ones with strong increases in energy production,” including Texas, New Mexico and Colorado, said Mark Perry, an economist at the University of Michigan and an economic analyst for the conservative-leaning American Enterprise Institute. GDP measures gross domestic product, or the value of all goods and services produced in a given period of time.
TAOS — The interim Legislative Finance Committee heard the latest rosy budget projections, which show revenues from booming oil and gas activity leading to $1.17 billion in new money for the next fiscal year, bringing total revenue to $7.3 billion. But analysts cautioned the surplus is the result of increasing reliance on oil and gas revenues—which are notably volatile. Because of this, they recommended setting aside at least 20 percent of the revenue in reserves in case of another crash in the oil and gas market or a recession. Legislators will decide during next year’s legislative session what to do with the revenues. In the past, when oil and gas prices fell, previous reserves weren’t enough to make up for the losses and legislators had to cut the state budget.
It took moving a few million dollars here and putting a few million dollars there, but New Mexico had a budget by the end of Wednesday. A $6.3 billion spending plan is on its way to Gov. Susana Martinez after the Senate and House of Representatives brokered a compromise on slightly different budgets approved by both chambers. The compromise won bipartisan support in the House and Senate, a marked departure from recent years when financial shortfalls led to spending cuts and intensely political clashes over state spending. Meanwhile, a spokeswoman for Gov. Susana Martinez signaled that she would be receptive to the budget. That is different from last year, when she vetoed much of the annual spending plan, at one point threatened a government shutdown and ultimately forced a special session.
A Senate committee bent Saturday to calls by Gov. Susana Martinez for more funding for state police pay and the District Attorney’s Office in Albuquerque, as well as calls from some fellow lawmakers to restore at least some of the funding cut from school districts last year. In announcing its version of the budget passed by the state House of Representatives late last month, the Senate Finance Committee seemed intent on maintaining the tenuous peace that has set in at the Roundhouse in the wake of the partisan clashes of the last few years. The budget would amount to about $6.3 billion and, according to the Senate Finance Committee, leave reserves around 10 percent. It would amount to about a 4 percent increase in spending over the current fiscal year. The House passed its version of the spending plan by a vote of 65-3 on Jan.
If state Sen. Bill Soules had his way, New Mexico would invest an extra $375 million in public schools right now. Where the cash-strapped state would find that money is another matter altogether. Soules, a Las Cruces Democrat, has once again introduced legislation calling for the state to follow the recommendation of a decadeold study and funnel hundreds of millions of dollars more into its public education system — one that generally ranks at or near the bottom in most national reports. But Soules’ bill doesn’t have a chance in the upcoming legislative session. And he knows it.
Gov. Susana Martinez joined 20 Republican governors in support of federal tax cuts. The letter to Senate Majority Leader Mitch McConnell, R-Kentucky, and Speaker of the House Paul Ryan, R-Wisconsin, didn’t advocate for either plan passed by the House or Senate, but instead called for general principles in a tax overhaul. The House and Senate each passed different plans, necessitating a conference committee for the two to reconcile language. The narrow Republican majority complicates the measure, as does the House Freedom Caucus, a bloc of hardline conservative Republicans in the House, including New Mexico’s Rep. Steve Pearce. They touted tax cuts made since 2011, and the economic growth they say the cuts caused.
New Mexico finally received some good news on the budget after two years of sharp downward trends. Of course, recovering from those losses will still take time. This morning, two cabinet-level secretaries and the Legislature’s top economist presented revenue estimates to the Legislative Finance Committee that project the state will have $199 million in new funds for the budget next year. Presenters warned they were only cautiously optimistic on the budget surplus because of a number of potential risks that the state has little to no control over. The news is better than what the committee heard in August, and the revenue is expected to come from larger-than-previously-expected growth revenues from personal income taxes, corporate income taxes and money received from the oil and gas industry.
The tax bill Congress is considering could blow up New Mexico’s budget—as early as next year. New Mexico Senate Finance Committee chair John Arthur Smith, D-Deming, and House Appropriations and Finance Committee chair Patricia Lundstrom, D-Gallup, sounded the alarm with a letter to members of the congressional delegation and Gov. Susana Martinez. The two wrote the state could lose nearly $600 million in federal funding in the coming year, including over $430 million in federal mineral leasing payments. This is money the federal government pays to states for oil and gas drilling and coal mining on federal lands within their borders. “Loss of FML revenues, which primarily fund public education in New Mexico, would have a devastating impact on the state’s budget and would wipe out the reserves our state has struggled to rebuild,” the two legislators wrote.
The question isn’t if there will be another recession, it’s when the next recession will hit. And a new report finds that New Mexico is among the most ill-prepared states for an economic downturn. Moody’s Analytics analyzed all 50 states to find out which are best- and least-prepared for the next recession. Performing “stress tests” on each of the states’ budgets, the risk management company looked at how drops in tax revenue and increases in Medicaid spending from a recession would impact state spending—and if states had enough reserves to weather a moderate or severe recession without raising taxes or cutting spending. Senate Finance Committee Chairman John Arthur Smith said one clear indicator that New Mexico isn’t ready is the state has “never fully recovered from the recession when the rest of the nation has.”
The inability to recover from the Great Recession shows that the next recession “should be around the corner” according to Moody’s Analytics.