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.
New Mexico’s savings keeps dropping —and now the state has one of the smallest cushions of any state in the nation. Even now, those reserves are still well below pre-recession levels. If no new money were coming in and the state government could rely only on those reserves, there would only be enough cash to run the state for 8.4 days. That’s according to The Pew Charitable Trusts and its analysis of states’ fiscal health. In Fiscal Year 2016, the amount of money New Mexico held back and put into savings—to pay for unexpected expenses or shore up the budget when revenues dip—was at its lowest level since 2000, according to Pew.
An annual audit of the state’s finances found that officials had double-counted over $750 million dollars. And that’s not the first time something like this has happened. That’s the most striking finding from an audit of the state’s Comprehensive Annual Financial Report, which gives a detailed picture of the state’s fiscal situation, for the fiscal year that ended in mid-2016. Auditors gave the report a “disclaimer of opinion,” which means there are significant enough problems that they cannot give a valid opinion on the report.[perfectpullquote align=”right” cite=”” link=”” color=”” class=”” size=””]The state’s best environmental coverage. [/perfectpullquote]This is the fourth consecutive year that auditors gave the CAFR a disclaimer of opinion.
This week, NM Political Report editor Matthew Reichbach was on Here & There with Dave Marash, discussing the recent special legislative session. The show appears on KSFR in Santa Fe and is available online for free. Legislators met during the brief special session to address the state’s budget, making sure it would be balanced, as required by the state constitution. One piece of legislation, championed by Gov. Susana Martinez and agreed to by reluctant legislators, used severance tax bond money to help cover a budget hole. Reichbach and Marash also discussed a tax overhaul proposal that did not clear a House committee.
If it had passed in its original form, the tax overhaul supported by the governor and legislative Republicans during the recent special session would have hurt the state. That’s the news from the finalized fiscal impact analysis done by staffers with the Legislative Finance Committee, first flagged by the Albuquerque Journal. According to the analysis, a technical error on the part of the bill’s drafters threw off revenue estimates by more than $100 million. The error had to do with the repeal of a nonprofit receipts exemption that applies to nonprofit organizations, including hospitals. The bill itself was finalized shortly before the special session began and was introduced hours after the special session came to order.
For most of this year, the budget was the hottest topic for legislators and the governor. Both branches battled, then came to an agreement no one seems enthusiastic about. The deal suggested by Gov. Susana Martinez essentially amounted to using bonding money normally reserved for state infrastructure to balance the budget. State lawmakers request the bonding money for state infrastructure projects. Issuing bonds works like a home mortgage: the state borrows money backed by oil and gas revenue and pays it back with interest over the years. Senate Finance Committee Chairman John Arthur Smith, D-Deming, said the funding method “sets a poor precedent” while Senate Minority Leader Stuart Ingle, R-Portales, said he didn’t “like to do this either.”
And yet, the plan passed with a unanimous vote in the House of Representatives and just two dissenting votes in the Senate.
Without much drama or even an attempt to override Gov. Susana Martinez’s vetoes of tax increases, legislators ended a special session where a budget deal became law. The legislators in both chambers came to order around 1 p.m. on Tuesday after recessing ahead of the holiday weekend. The legislators recessed last Thursday rather than adjourn after passing bills related to the budget and taxes. Staying in session while recessed meant Martinez had to make a decision on legislation to three days instead of 20 days. Martinez ultimately signed legislation on Friday reinstating funding for higher education and the state Legislature, both of which she vetoed entirely after the regular Legislative session earlier this year.
A complex tax overhaul bill failed to clear its committee, and that’s going to further complicate the special session in which legislators are supposed to address the budget in New Mexico. Rep. Jason Harper, R-Rio Rancho, presented his 430-page tax overhaul bill Thursday morning. It took him nearly an hour to describe the bill to the House Labor and Economic Development Department. “That in very high-level, broad terms is what is in this bill,” Harper said when he finished describing the bill and how it differed from a similar bill legislators already passed in March. After public comment and questions from the panel, the committee voted 6-5, on party lines, to table the bill.
A House panel passed a bill to restore funding vetoed by Gov. Susana Martinez for next year for higher education, courts and the state Legislature Wednesday afternoon. Meanwhile, tax packages that would increase taxes on things like internet sales and gasoline also moved forward. The budget vote came mostly on party lines save for state Rep. Sarah Maestas Barnes, R-Albuquerque, who joined Democrats in supporting it. Maestas Barnes was also the lone Republican to vote for a failed override attempt of Martinez’s budget vetoes earlier in the day. In total, the bill appropriates roughly $765 million—$745 million for higher education and $19 million for legislative offices—for the next fiscal year, which begins July 1.
Questions on what can be accomplished during a special session linger even as legislators head to Santa Fe today. The main priority for legislators is a budget. Legislators must pass a new budget after Gov. Susana Martinez vetoed the entire budgets of higher education and the Legislature. If a new budget isn’t passed before the start of the next fiscal year, which begins on July 1, New Mexico community colleges and universities will have no money. But Martinez also wants legislators to address a massive tax overhaul and confirm two University of New Mexico regents.