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Monday, December 08, 2008

NM Budget Shortfall Worsens to $454 Million

By Barry Massey
Associated Press
       SANTA FE — New Mexico's budget shortfall has worsened this year and the state's financial problems will continue through the upcoming fiscal year, potentially forcing cutbacks in large programs like public education.
    That's the message delivered to legislators on Monday in a new revenue forecast that showed the state continuing to suffer financially because of a slumping economy and lower-than-expected oil and natural gas prices.
    Revenues are projected to fall $454 million short of covering spending in this year's $6 billion budget. In October, the shortfall was $250 million although some lawmakers have been warning in recent weeks that the shortfall was likely to hit $500 million.
    Gov. Bill Richardson and the Legislature are looking at how to balance this year's budget, probably through a combination of steps: trimming spending, canceling capital improvement projects to free up one-time money and finding ways to potentially boost revenues. The state also can tap into part of its cash reserves, which totaled about $700 million at midyear. State government — unlike the federal government — cannot run a deficit.
    The latest set of revenue projections also made clear the budget problems won't end this year and that more cutbacks will be necessary in the next fiscal year, which starts July 1, 2009.
    The administration's top budget official acknowledged for the first time that budget reductions are likely next year for nearly all of state government, including public schools and higher education. Almost no revenue growth is expected next year.
    "I think what we'll see next year is broad based cuts across all areas," Katherine Miller, secretary of the Department of Finance and Administration, told reporters after she testified to the Legislative Finance Committee about the revenue outlook.
    Public schools and higher education — a network of colleges and universities — account for almost three-fifths of spending from the state's main budget account.
    When the budget woes began to surface in the fall, Richardson said this year's shortfall could be resolved without cutting public education or critical services such as the health care provided to the poor and uninsured through the Medicaid program.
    Richardson also doesn't want to use all the reserves to take care of this year's shortfall. Miller said reserves should be kept at least equal to 10 percent of spending to provide a financial cushion in case of more financial problems.
    Miller said it's possible there could be "small cutbacks" in education this year as lawmakers try to balance the budget. Richardson has said he doesn't expect any layoffs of government workers will be necessary to plug this year's shortfall.
    Miller said the administration also is looking at options for controlling Medicaid costs.
    Sen. John Arthur Smith, a Deming Democrat and chairman of the LFC, said there was an "encouraging note of reality" from the administration with Miller's acknowledgment that public education will almost certainly face budget cuts in the upcoming year.
    The state's financial problems represent a dramatic turnaround from six months ago when the governor and lawmakers were anticipating a revenue windfall of almost $400 million this year because of rising oil and natural gas prices.
    However, energy prices reversed course and have plummeted far below what had been expected when this year's budget was enacted in February. In addition, the nation's economy has soured and the state's economy is slowing, which means the state will collect less what had been expected from broad based revenue sources such as income taxes and gross receipts taxes that provide much of the money for running government.
    It remains uncertain how deeply budgets will be cut this year. If lawmakers and the governor find ways to erase the shortfall without significantly reducing this year's spending, then it could postpone the belt-tightening pain to next year for agencies and education. Next year's projected revenues are about $293 million less than the spending in this year's budget.
    Overall, the state is expected to collect about $5.73 billion in revenues next year, but Smith cautioned that revenue problems could worsen if the economy continues to weaken.
    "Obviously it's still a moving target," Smith told his colleagues. "None of us know ... how far this thing is going to fall."
    The Legislature convenes in January for a 60-day session. One of the main tasks for lawmakers is writing a budget to finance next year's operations of general government and education.
    The latest revenue forecast for this year was rolled back $186 million from projections made in October by economists for the administration and the Legislature. Next year's estimated revenues were trimmed by almost $287 million.
    In the current budget year, the revenue outlook assumes oil will average $69 a barrel and natural gas will average $6.05 for each thousand cubic feet, or mcf. In October, revenue projections were based on oil at $94 and gas at $6.75. The state collects taxes and royalties on oil and natural gas production. Each 10-cent drop in natural gas means about a $10.5 million decline in state revenues. A $10 change in oil translates into about a $35 million change in state revenues.

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