But the state is still well short of its traditional target of holding on to cash that equals about 10 percent of the spending needed to operate the government each year.
Stronger-than-expected revenue has the state headed toward a reserve level of 3 percent by the end of the fiscal year, in June 2018, said Stephanie Schardin Clarke, deputy secretary of the Department of Finance and Administration.
That’s much more positive than a previous estimate of just 0.4 percent in reserves, which would have been the slimmest margin in at least two decades, or as far back as the legislative staff has electronic records, one state economist said.
The extra cushion is a result of stronger revenue growth – from gross receipts taxes, among other sources – than was forecast in December, just before lawmakers began working on this year’s budget.
Schardin Clarke shared the new projected figure Monday as part of a presentation to a legislative committee that oversees the New Mexico Finance Authority.
The estimate isn’t an official financial forecast but gives state lawmakers an idea of the state’s financial picture before a new forecast is formally issued next month. Economists for both the executive and legislative branches of government will work on the August forecast.
Rebuilding the state’s reserves is one step that should help protect New Mexico’s credit rating, which was downgraded last year, state officials say. About one-third of the state budget comes from oil and gas activity, which fluctuates depending on market conditions, making it difficult to predict.
A reserve level of “10 percent is not too cautious, given our revenue volatility,” Schardin Clarke said.
To help protect its credit rating, New Mexico also needs to get its annual audits done more quickly and make some other improvements in financial reporting, Schardin Clarke said.
Reducing the state’s reliance on oil and gas production is also critical, officials said.
Total employment in New Mexico still hasn’t bounced back to 2008 levels, before the Great Recession, said Jon Clark, chief economist for the Legislative Finance Committee.
“We’ve had a lost decade for job growth and wage growth,” he said.
Having enough money to pay for state services remains a challenge, Clark said. The state’s ongoing, or “recurring,” expenses still outpace ongoing revenue, he said.
“We have a structural problem,” said state. Sen. Jacob Candelaria, D-Albuquerque.
Two major rating agencies – Moody’s and Standard & Poor’s – have assigned the state a “negative” outlook, though New Mexico’s overall credit rating remains strong and the state appears to have avoided a second downgrade for now.