A boom in the oil and gas industry helped deliver a record-breaking $8.5 billion budget to New Mexico this year. Despite the windfall, lawmakers declined to give needed funds to the agencies responsible for regulating the increased pollution that such booms create. The state’s two primary environmental agencies, the New Mexico Environment Department and the Energy, Minerals and Natural Resources Department, will both receive modest bumps to their budgets from the state’s general fund, but these will still fall about $9 million short of the amounts the agencies and the governor requested in the Executive Budget Recommendation. Both environment agencies are responsible for a growing amount of oversight, from enforcing pollution restrictions and food safety to mitigating wildfires and curbing impacts from climate change. Despite the increasing duties, the proposed spending plan for fiscal year 2023 calls for NMED’s budget to be nearly 5 percent lower when adjusted for inflation than it was in 2008; EMNRD’s budget is almost 13 percent lower.
Proposed cuts to higher education spending in New Mexico could jeopardize some research funding for state universities and lead to a hiring freeze at Santa Fe Community College, advocates say. Universities and colleges in New Mexico are denouncing proposed cuts to higher education spending as lawmakers trim budgets across state government to fill a $2.4 billion budget hole wrought by the COVID-19 pandemic and a devastated oil and gas market. A draft House bill seeking to blend recommendations from Gov. Michelle Lujan Grisham and an influential budget committee would slash roughly 6 percent from research and public service projects at universities and 4 percent for broader university and public college funding from the state. That would represent the steepest reductions for any state-funded department or agency eyeing potential cuts as lawmakers address the budget shortfall. The Legislature is still debating the proposed cuts.
New Mexico House Republicans presented a starkly different plan for fixing the state budget Monday, calling for lower spending levels than the governor and a key legislative panel have proposed. Minority Whip Rod Montoya said the state shouldn’t use federal stimulus funding to help mend its huge budget shortfall during the upcoming special session because the U.S. government hasn’t approved the use of those funds for that purpose. “If we do pass this budget in the next several days with that in place, we will have passed an illegal budget,” said Montoya, R-Farmington. The proposal from GOP legislators differs from the solvency plans presented last week by Gov. Michelle Lujan Grisham and the Legislative Finance Committee, which both call for using at least $700 million in federal funding to help the state shore up the shortfall caused by the novel coronavirus pandemic. Guidance issued by the U.S. Treasury Department regarding the coronavirus relief act passed by Congress states the stimulus funding allocated to states must be used to cover costs that “are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019.”
It also says “funds may not be used to fill shortfalls in government revenue to cover expenditures that would not otherwise qualify under the statute” and that “revenue replacement is not a permissible use of fund payments.”
The Legislative Finance Committee and the governor’s office outlined the framework for the budget proposal that will be considered during next weekend’s special legislative session. The consensus revenue estimate, put together by legislative and executive branch analysts, projected a nearly $2 billion drop in revenue from the December 2019 estimate that guided the creation of the budget passed earlier this year.
The special session will begin on June 18. The previous estimate projected the state would have $7.9 billion in revenue, but new estimates say that will drop to $5.9 billion in the coming year. New Mexico, like most states, is required to have a balanced budget and not run a deficit. The state is experiencing an economic crisis, as LFC Director David Abbey referred to the situation, because of plummeting oil and gas prices and the loss of gross receipts tax revenue because of the economic situation from COVID-19 and the response to slow the spread of the disease.
New Mexico has enough from savings plus new money from Washington to help public schools weather looming budget shortages, says Sen. John Arthur Smith, D-Deming, a powerful lawmaker who helps to shape each year’s state budget. “It would be prudent to make some cuts but not deep cuts for the 21 budget,” Smith said Thursday morning of the public education portion of the spending plan for the fiscal year that begins July 1.
On Wednesday during an online update on COVID-19, Gov. Michelle Lujan Grisham expressed a desire to keep spending on public schools intact during a special legislative session she has called for June 18 to tackle a budget hole projected between $1.8 billion and $2.4 billion for the state’s fiscal year that begins July 1.
On Thursday her spokesman, Tripp Stelnicki, reiterated his boss’ position: It’s “premature to talk about cuts. We’ll know when the special session gets closer.”
The significant hit to the state budget is due to a near shutdown of the economy to fight the COVID-19 pandemic, which led to a collapse in consumer spending and global demand for oil and gas, both of which feed New Mexico’s revenue base through wages and taxes.
Smith based his opinion on multiple developments: the lion’s share of $120 million from the recently passed CARES Act in Washington that will go to the state’s 89 school districts and dozens of charter schools. New Mexico’s decision to salt away in savings more than $1.5 billion dollars during the legislative session that ended in February. And $325 million in money that individual school districts have in their own reserves.
State Senate Finance Committee chairman John Arthur Smith was among the many New Mexicans who watched oil prices plummet to unprecedented numbers, as a glut of oil and a precipitous drop in demand sent prices into negative territory for West Texas Intermediate. Smith said he saw oil prices dropping Sunday night, before dropping to $10 when he saw the news Monday morning, then even further as he started his workday. By the end of trading, WTI was trading for -$30 per barrel. In other words, traders would pay people $30 to take their supply. “I’ve just never seen anything like it,” he said.
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.