A “perfect storm” is hitting oil and gas prices, impacting New Mexico and its reliance on the volatile industry’s tax money, according to the Senate Finance Committee chair. The collapse in the price of oil comes just weeks after the state Legislature passed a budget and days before the governor makes her final decisions on line-item vetoes and other decisions in the budget. As of now, the governor’s office says the budget will preclude the need for a special session to adjust spending. Oil prices dropped nearly 25 percent on Monday, the worst day since 1991. Senate Finance Committee chairman John Arthur Smith, D-Deming, said it was because of a “perfect storm” with a dispute between Saudi Arabia and Russia leading the Middle Eastern nation to slash prices and announce an increase in production.
The state Senate passed the main budget bill Wednesday by a wide margin after a lengthy debate in which Republicans warned of the dangers of New Mexico’s dependence on oil and gas, while a couple of progressive Democrats argued for spending more. The chamber approved its amended version of House Bill 2 by a vote of 35-7 after a two-hour debate, calling for a $7.6 billion budget for fiscal year 2021 that would represent a 7.6 percent increase over the current year and leave reserves at 25 percent. The House now needs to agree with the Senate’s changes before the General Appropriations Act can move to the governor’s desk. A House vote on the amended bill was expected Wednesday night. NM Political Report update: The House concurred with the Senate changes early Thursday morning and the budget will be sent to Gov. Michelle Lujan Grisham’s desk.
A cut here, a whack there — and a budget takes form. But not without some acrimony. The Senate Finance Committee released considerable changes to the state’s main budget bill Tuesday, trimming the House’s spending plan in high-visibility areas such as roads and teacher pay raises, and scaling down one of Gov. Michelle Lujan Grisham’s most prized pieces of legislation, the Opportunity Scholarship. The committee unanimously approved its amendments to House Bill 2, which calls for a $7.6 billion budget for the 2021 fiscal year, and moves the legislation to the Senate floor. That would represent a 7.6 percent increase over the current year and would target reserves at 25 percent.
On Monday morning, there was a sign on a key Senate panel’s door with underlined writing in all caps. “House Bill 2 will not be heard today,” it read. The General Appropriations Act, also known as the main budget bill for New Mexico state government, had been on the Senate Finance Committee’s agenda for Monday but would now have to continue awaiting action, as it has for nearly since two weeks since the House passed it. “We don’t have the amendments ready,” committee chair Sen. John Arthur Smith told The New Mexican. “It’s not an easy process when you have this many amendments.”
Indeed, the committee does have to sort through some 600 proposed amendments while it also figures out how to cut around $150 million from a House bill Smith says overshoots spending targets.
One-third of the way through the 2020 legislative session, the House and Senate have yet to hear the state’s main budget bill. But as that moment draws nearer, a flurry of negotiations over how to spend more than $7 billion are heating up in committee meetings and behind closed doors. Key talks involve bridging the gaps between the executive and legislative branches’ competing spending plans on education. A series of interviews on Thursday showed some of those discrepancies are being resolved, while others … well, not yet.
ByMichael Gerstein and Jens Gould, Santa Fe New Mexican |
Rarely has the phrase “financially prudent” been so hard to define at the Roundhouse.
Amid the backdrop of a flush revenue stream and looming legislative races in November, Republicans are hammering away at Democrats and Gov. Michelle Lujan Grisham in the early days of the 2020 session — contending they are overspending in a state inextricably reliant on the unpredictable oil and gas industry. Yet Democrats say their spending plan is fiscally responsible, and key components of their argument are backed by the influential Legislative Finance Committee.
An estimated 45 percent of general fund revenues are now dependent on oil and gas, and GOP members argue that when that contribution declines, the state will be hard-pressed to find funding for new budget increases in early childhood and higher education the governor has proposed this session. Lujan Grisham is proposing a $7.68 billion budget for fiscal year 2021, including a $74 million increase to the Early Childhood Education and Care Department, $200.3 million more on K-12 education, a 4 percent pay raise for teachers and $35 million for the Opportunity Scholarship program. For Minority Leader Jim Townsend, R-Artesia, Minority Whip Rod Montoya, R-Farmington, and other Republicans in the Legislature, the governor’s proposed 8.5 percent spending increase from last year is “irresponsible.”
“When we say it’s irresponsible, those words are not hyperbole. It is a fact — it’s irresponsible.
Members of the Legislative Finance Committee from both sides of the aisle cited concerns Monday about the governor’s $35 million plan for a scholarship program that aims to make tuition free for many in-state students attending New Mexico’s public colleges and universities. Gov. Michelle Lujan Grisham has said the New Mexico Opportunity Scholarship, one of her key initiatives for the 2020 legislative session, would make higher education accessible to a larger number of high school graduates, lower the burden of student loans and help reverse a trend of declining enrollment at colleges. But lawmakers’ comments during a hearing on the proposal Monday, a day before the session’s start, raised questions about whether it will gain enough support to pass the Legislature. “I see a whole lot of problems,” Sen. George Muñoz, D-Gallup, a member of the Legislative Finance Committee, told Higher Education Secretary Kate O’Neill.
Among the problems Muñoz cited: The scholarship could create an incentive for eligible students to choose a four-year university over a two-year community college, leaving smaller schools with stagnant or declining enrollment. Muñoz said he’d like to see the tuition aid apply to community colleges first to increase student numbers at those institutions.
Despite the wide variety of topics lawmakers will delve into starting Tuesday, this 30-day legislative session is meant to prioritize one thing: the budget. It can be an intimidating monolith. And while its hundreds of line items representing multitudes of state agencies provide plenty of room for disagreement, there’s actually a fairly close connection between the budget recommendations recently released by the executive and legislative branches. The governor is calling for an 8.4 percent increase to $7.68 billion for the fiscal year 2021 budget, while the committee recommends a 6.5 percent increase to $7.54 billion. Either plan would give New Mexico its second straight year of major budget increases fueled by unprecedented oil production in the southeast corner of the state.
Still, there will be debate, and it may not just be nibbling around the edges. Tension is likely to center on one key area where Gov. Michelle Lujan Grisham and the Legislative Finance Committee haven’t seen eye to eye — an Opportunity Scholarship that would provide tuition-free college for New Mexico residents.
From a numbers perspective, it’s hard to see a downside to the massive amounts of oil revenue flooding the state of New Mexico’s coffers. But there is one: The windfall is enlarging the state’s dependence on the energy industry. That may not be a problem right now. But it will be when the price of oil crashes again. And almost everyone — industry experts, politicians, economists — expect that it will.