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State’s Revenue Forecast Lowered

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New Mexico’s road to economic recovery is proving to be a long ride, with state revenue levels for the next few years now expected to be less than projected earlier this year.

The brighter side? After three years of budget cuts that reduced state spending from about $6 billion in 2008 to $5.4 billion this year, New Mexico legislators could have $245 million in “new money” to appropriate next year, according to a consensus estimate released Tuesday by legislative and executive economists.

The bottom line? That’s about $115 million less than projected in July, and much of the new money, provided it materializes, could be quickly gobbled up by the rising costs of Medicaid and other state programs, or put aside for emergency use.

Gov. Susana Martinez’s administration and several top-ranking lawmakers called Tuesday for taking a careful fiscal approach and limiting any spending increases to strategic areas.

“The recovery is not going to happen as quickly as we thought it would,” Finance and Administration Secretary Tom Clifford said after Tuesday’s budget hearing at the Capitol. “I would consider it a pretty tight budget environment (for next year).”

Such an economic environment could mean largely flat budgets next year for many cash-strapped state government agencies, some of which have been forced to lay off employees this year.

Legislators on a key interim budget committee voiced concern Tuesday about ongoing economic volatility – including the threat of additional federal spending cuts – and the state’s high unemployment rate.

“The numbers are not that rosy,” said Sen. John Sapien, D-Corrales. “I think we still need to be really cautious.”

There might be some good news, however, for state teachers and employees, who have had their take-home pay reduced twice since 2009.

Clifford said economic conditions might require state workers, including teachers, to pay increased amounts of money into their retirement plans only through June 2012 – instead of for an additional year – as part of a budget-balancing plan adopted earlier this year.

A final determination on the retirement contributions will be made in December, though Clifford said, “I think we’re expecting that to happen.”

Forecast details

The revenue forecast released Tuesday – forecasts are issued several times a year – projects New Mexico will take in nearly $5.7 billion in revenue in the coming fiscal year.

Concern over how much the state will collect in broad-based tax revenue, and a recent decline in oil and natural gas prices, played a role in the forecast worsening since July, when next year’s revenue was projected to be more than $5.8 billion.

Lawmakers and the governor rely on the revenue estimates to pass an annual budget and Sen. John Arthur Smith, D-Deming, the chairman of the Legislative Finance Committee, said he’s apprehensive about the direction of the state’s economy.

“We’re rapidly running out of ways to Band-Aid this together,” said Smith, who said the state still is in a better financial position than many other states.

Meanwhile, Martinez’s office touted the fact that New Mexico has made it through the loss of federal stimulus funds that helped minimize budget cuts for the past three years.

“With the last session’s budget, the governor was able to put New Mexico’s financial house back in order, and with the next budget she intends to keep it that way,” Martinez spokesman Scott Darnell said.

Martinez, the state’s first-term Republican governor, has pledged not to increase taxes during her four-year term, and Darnell said the revised revenue estimates call for continued restraint.

“They reflect the need to continue to be cautious and to focus on core priorities, such as fostering job creation, improving our education system and providing for those most in need,” he said.

Medicaid problems

The cost of Medicaid, the joint federal-state program that provides health care services to one in four New Mexicans, has proved especially vexing to lawmakers.

The state’s Human Services Department is planning to ask the Legislature in January for as much as $100 million to take care of an accounting problem from previous years and its impact on the state’s Medicaid program.

That money is expected to be paid out of cash reserves unspent during the current fiscal year, which ends in June 2012.

In addition, core Medicaid costs are expected to increase by about $50 million to $60 million next year just to maintain currently offered services, Clifford said.

A bright spot in Tuesday’s revenue forecast could be $113 million more than expected for the budget year that ended in June, which would allow the state to carry forward more money in cash reserves.

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