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NM’s budget: From flush to cash crunch in 9 years

Copyright © 2017 Albuquerque Journal

SANTA FE – Nine years ago, New Mexico had so much cash that it gave some of the money back.

Booming oil prices and the housing bubble helped push the state’s operating budget to $6.8 billion – in inflation-adjusted terms – and the Roundhouse was filled with talk of issuing big rebate checks to taxpayers.

But the good times didn’t last.

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Soon, the Great Recession hit, and New Mexico’s revenue never fully recovered.

The crash interrupted what had been a lengthy trend of growth in state spending, carried through both Democratic and Republican administrations, since at least the early 1990s.

The story of today’s budget is much more volatile, and it’s ticking downward again.

In fact, New Mexico’s operating budget, adjusted for inflation, is at its lowest level in five years, and it has fallen 6 percent in the last two years. That’s about $388 million in reduced spending power since the 2016 fiscal year.

Universities and higher education have been hit hard, according to a Journal analysis. Their portion of the state operating budget has fallen 11 percent in the last two years.

Basic administrative functions of government – the Department of Finance and Administration, offices run by elected officials and the like – are down even more: roughly 19 percent.

All told, every category of state spending has fallen over the past two years, once inflation is factored in.

“It’s no big secret that we’ve been struggling,” said Sen. John Arthur Smith, a Deming Democrat and chairman of the influential Senate Finance Committee.

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The reductions, to be sure, aren’t seen by everyone as a bad thing – especially compared with the peak nearly a decade ago under then-Gov. Bill Richardson.

But they help explain the intense budget tension between Republican Gov. Susana Martinez and the Legislature, where Democrats hold majorities in both chambers.

‘It’s been tough’

Democratic leaders in the Legislature have pushed to increase taxes to help reverse the declining budget – proposals that have been blocked by Gov. Martinez, who, in turn, has pushed to simplify the tax code to make the state more attractive to business and grow the economy.

In the meantime, state agencies are having to get by with less.

Colleges, universities and other higher-education functions have seen their funding in the state operating budget fall by about $98 million over the past two years, in inflation-adjusted terms, a decrease of 11 percent, according to the Journal analysis.

“Absolutely, it’s been tough,” said Republican Garrey Carruthers, chancellor of New Mexico State University and a former governor of New Mexico.

The university, he said, has cut hundreds of jobs – a blow to the Las Cruces economy. And colleges throughout the state have raised tuition to help offset the loss in state funding, which makes it less affordable to low-income families, he said.

The budget for public schools and education is also falling. That portion of the state budget is down about $162 million, or 6 percent.

A few state budget categories have undergone less-severe cuts – public safety, judicial agencies and health and human services. Funding for each of those areas has decreased at a slower rate than the budget as a whole over the last two years, in inflation-adjusted terms.

Legislative debate

Next year’s legislative session, which starts in January, will renew the debate over whether higher education and public schools are getting enough.

“Each year we continue down the austerity path, we are leaving more and more of our kids behind,” said Senate Majority Leader Peter Wirth, D-Santa Fe. “Investing in education at all levels has to be a central premise of New Mexico’s economic development plan.”

About 13 percent of New Mexico’s operating budget this year is dedicated to higher education.

There’s been bipartisan support in the Senate, Wirth said, for levying taxes on internet sales, imposing a provider fee on nonprofit hospitals and raising the excise tax on the sale of motor vehicles.

“The longer we wait with the easy revenue fixes, the more damage is being done,” he said.

Republicans say more money isn’t necessarily the answer – a lesson demonstrated by the state’s own budget history, they say.

“The amazing part to me is that, with the enormous increase in funding in 2008-09, we still did not move the needle, when it comes to education,” Sen. William Sharer, R-Farmington, told the Journal. “Nationally, we were at the bottom before the spending increase, we stayed at the bottom during the heightened spending and we remain at the bottom today. Money alone is clearly not the answer to education.”

Sen. Steven Neville, R-Aztec, said it’s natural to see some decline in higher-education spending. Students can study many subjects online, he said, and the state simply has too many college campuses for its population.

“It’s great to be able to put a higher-education (campus) right next to your house,” he said. “The fact is, we may not be able to afford it.”

House Speaker Brian Egolf, D-Santa Fe, said it’s important to protect higher education, especially as New Mexico struggles with the second-highest unemployment rate in the nation.

“The story about higher-education funding is one of economic development – a huge economic development opportunity missed and squandered,” he said. “We can only guess what our economy would be like now if we had protected higher education.”

Common ground

Democrats and Republicans, however, are finding some common ground.

A bipartisan proposal to study New Mexico’s complex system of gross receipts taxes is underway, with preliminary results expected before the regular legislative session in January.

The aim is to develop a model that allows legislators to analyze the impact on revenue if they change tax rates, close exemptions or make other changes to the tax code.

Both sides have expressed support for eliminating a broad swath of the credits, deductions and loopholes that riddle the gross receipts tax system. But there has been intense disagreement over the details and how quickly to move on the changes.

Another sign of compromise: The governor and lawmakers this year agreed to create a new reserve designed to capture excess revenue during good times, forcing the state to hold onto some of its money, which, in turn, will be available when times are tough.

The goal is to smooth out the volatility in New Mexico’s spending, said Rep. Larry Larrañaga, an Albuquerque Republican who pushed for legislation creating the new reserve fund.

State economists have also found some signs of optimism about revenue growth, though no one seems to think the roaring oil and gas income of 10 years ago will come back.

“There’s hope,” Larrañaga said. “I think there’s a light at the end of the tunnel, but it’s maybe not as bright as we’d like it to be.”

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