Copyright © 2017 Albuquerque Journal
SANTA FE – New Mexico lawmakers on Tuesday completed a special session that yielded legislation to restore vetoed higher education funding, but left the state facing the possibility of an additional downgrade to its credit rating due to the expectation of all-but-exhausted cash reserves.
Sen. John Arthur Smith, a Deming Democrat and chairman of the Senate Finance Committee, predicted there’s a 50-50 chance that New Mexico’s credit rating will be downgraded for a second time, which would mean higher borrowing costs for state and local governments.
“We’ll keep our fingers crossed,” Smith said.
The special session resumed Tuesday after a four-day recess to allow Gov. Susana Martinez to act on passed legislation.
The House adjourned after only about 10 minutes, and the Senate spent about 25 minutes in session, with Democrats slamming Martinez for vetoing some tax legislation.
Martinez, the state’s two-term Republican governor, last week vetoed a package of tax increase proposals that would have generated at least $215 million in new annual revenue, saying it would have hurt New Mexico families. A separate GOP-backed proposal to overhaul the state’s gross receipts tax system stalled in the Democratic-controlled House.
The state is now projected to spend roughly $6.1 billion in the fiscal year starting July 1 – about $133 million more than it’s expected to collect in revenue.
The difference could be made up in money left over from the current budget year, estimated to be $167 million, but lawmakers acknowledged it’s a bit of a wager.
Without any additional revenue, the state’s projected cash reserve balance for the end of the coming year is $24 million – or just 0.4 percent of spending.
The low reserve levels could also mean additional budget-balancing – either in a new special session or the 2018 regular session – if projected revenue levels do not materialize.
“We’re never out of the woods in this game,” Rep. Larry Larrañaga, R-Albuquerque, told the Journal after the House adjourned. “But I think we’re seeing the revenue come in at a higher rate.”
He also said the enactment of a new “rainy day” fund designed to set some revenue aside in cash-flush years could be looked upon favorably by national credit rating agencies.
The rainy day fund was signed into law, along with a proposal to divert some of the money that usually flows into a legislative retirement account for several years.
Another cash-saving provision enacted by Martinez is a complex bond transaction that’s expected to generate more than $80 million in one-time money for the state’s general fund.
Senators – many of whom expressed reservations about the deal – criticized it as irresponsible borrowing to prop up the operating budget. The Martinez administration, in turn, described the deal as a common-sense way for legislators to give up their “pork projects” to help the budget.
An official for Moody’s Investors Service, one of the large national credit rating agencies, suggested Tuesday that there will be close scrutiny of New Mexico’s special session outcome.
“We’ve noted the budget was passed late last week, and we’ll be analyzing the budget in full later this week,” said David Jacobson, the rating agency’s vice president of communications.
The credit rating agency downgraded the state’s top bond rating in November, due to concern over plummeting state revenue levels that led to spending cuts and the depletion of cash reserves.
Meanwhile, Senate President Pro Tem Mary Kay Papen, D-Las Cruces, said the governor’s rejection of the proposed tax increases on gas and vehicle sales, among other revenue-generating ideas, leaves New Mexico without enough reserves.
“We are in a vulnerable position when it comes to potential natural disasters or unforeseen circumstances,” she said.
But in the end, there was no attempt Tuesday to override Martinez’s vetoes. Previous attempts in the House and Senate had failed last week largely along party lines.
Senate Minority Leader Stuart Ingle, R-Portales, said legislators had done what they needed to – provide funding for higher education and the Legislature itself after Martinez had vetoed the spending in a previous budget bill. He suggested it was time to move on.
“We’re never always right – either side of the aisle,” Ingle said.