December 12, 2023

Revenue projection: $3.5 billion in new money, though recovery slows

State economists told Legislators that they will likely have an additional $3.5 billion in revenue to consider when crafting the next budget. This is over the already record-breaking revenue, and budget spending, from the previous legislative session. The post-pandemic economic recovery in New Mexico is slowing down due to expired tax credits, oil price fluctuations […]

Nicole Maxwell

State economists told Legislators that they will likely have an additional $3.5 billion in revenue to consider when crafting the next budget. This is over the already record-breaking revenue, and budget spending, from the previous legislative session.

The post-pandemic economic recovery in New Mexico is slowing down due to expired tax credits, oil price fluctuations and employment needs slowing down.

However, extra revenues are coming from recurring funds such as corporate and personal income taxes as well as gross receipts taxes.

On Monday, state economists presented the December General Fund Consensus Revenue Estimate to the Interim Legislative Finance Committee.

Estimated recurring revenues for Fiscal Year 2024 are $12.768 billion, an increase of $156.9 million from the August estimate. FY 25 recurring revenues are estimated at $13.048 billion, which is down from the August estimate by $3.2 million.

The increase in projected revenue, or new money, is estimated to be $3.479 billion or a 36.4 percent growth from the FY 24 recurring budget, the report states.

“I’ll just start by saying there hasn’t been a lot of change in the baseline forecast from Moody’s (Analytics), S & P Global or BBER (University of New Mexico Bureau of Business and Economic Research) since the August forecasts that you last received. There are minor ups and downs and some changes in oil and natural gas markets. But overall, the broad forecast for the US and global economies is not too different,” Taxation and Revenue Department Secretary Stephanie Schardin Clarke said.

Slower growth following post-pandemic boom

Although the total economic forecast is improving with slowing inflation and rising interest rates, economic growth is slowing, the report states.

“We’re seeing that slowdown because of the implementation of tax cuts or of reductions in tax revenues,” LFC Chief Economist Ismael Torres said. “Lower inflation is certainly taking a toll or playing a part in lower revenue collections. Employment markets are weakening after three years of strong employment demand. Consumer savings are finally depleting after the build up during the pandemic. Oil prices have weakened and oil production has slowed tremendously from its really remarkable growth over the last several years. And all of that is contributing to the slowdown in revenues.”

The U.S. labor market is expected to have positive but moderate growth while gross domestic product, although positive, is expected to weaken in 2024 and 2025, Schardin Clarke said.

Unemployment is expected to peak at 4.7 percent in 2024. The current unemployment rate is 3.7 percent nationally and 3.6 percent in New Mexico.