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.
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.
New Mexico legislators are seeking to overhaul a key part of the state’s tax code in next year’s legislative session, but doing so will be difficult.
That’s according to members of the New Mexico Legislature’s interim Revenue Stabilization and Tax Policy Committee after they heard a presentation from state experts on tax reform efforts and an update on an independent study on tax reform in the state. Legislators have been looking at reforming the state’s Gross Receipts Tax, a key source of revenue. Earlier this year, the state hired Ernst & Young, in partnership with Georgia State University, to take a look at how changing the state’s GRT might affect revenue. Legislative Finance Committee analyst Jon Clark said analysts will examine a tax reform effort sponsored during this year’s special legislative session by Rep. Jason Harper, R-Rio Rancho. Harper took a crack at tax reform when he introduced House Bill 8, a massive 400-page bill which would have lowered the gross receipts tax while eliminating most deductions.
With the state still running a deficit and reserves depleted, Democrats in the New Mexico House of Representatives have identified four tax or fee increases they say would prevent more cuts to education and put the state on better financial footing. The initiatives — taxing all internet sales, raising the permit fee on heavy trucks, closing a loophole that benefits nonprofit hospitals and increasing the tax on vehicle transfers — could raise more than $200 million in ongoing revenue. Some of it would go to avoid cuts in state agencies and some to beef up reserves. The move to bring together the House Democratic caucus came on the same day as state economists restated a revenue forecast from December that shows the economy has stabilized but reserves are far below the desired level of $300 million, or 5 percent of recurring revenue. The reserve account for the $5.6 billion budget at the end of the fiscal year on June 30 is projected at 1.6 percent.
During September’s special legislative session, lawmakers agreed on fixes that added about $23 million in revenue. That was a start, but not nearly enough to solve the state’s budget crisis. On Wednesday, state legislators received little good news about the state’s revenue stream during a committee meeting. Even with that help, New Mexico’s bean counters dropped their revenue projections for the current fiscal year from previous estimates by more than $130 million. The state’s current fiscal year began in July and ends next June.
The latest update on the state’s budget situation was filled with negative news, including a large reduction from previous budget projections released in August. The current year’s budget is projected to be $69 million in the hole. For the fiscal year starting July 1, 2017, state budget experts project $300 million less money to spend than the budget in the current fiscal year—which itself saw massive cuts during the special session, with 5.5 percent cuts to most agencies. The update, presented by experts from the Department of Finance and Administration and the Taxation and Revenue Department Monday morning to the Legislative Finance Council, comes a month and a half before legislators go back to work during a regular legislative session to deal with next year’s state budget. During a special session in September and October, the Legislature plugged a $600 million budget deficit that encompassed last year’s budget and the current budget through a combination of tapping into reserves and making cuts.
A high profile legislative leader and the State Treasurer are urging the governor to call a special session to deal with a worse-than-expected fiscal situation in the state. Senate Finance Committee Chairman John Arthur Smith said in a capitol press conference that lawmakers need to inject an additional $200 million to keep the current budget, which went into effect this month, balanced. Smith said he thought the state would face a shortfall of $500 million in next year’s budget. These predictions came after the most recent numbers showed revenues fell $58 million in May 2016 when compared to May 2015. Smith, D-Deming, predicted state revenues this year will amount to $5.7 billion, down from the $6.1 billion signed into law earlier this year.