Legislators weigh ideas for $1.2 billion in ‘new’ money

Copyright © 2018 Albuquerque Journal

SANTA FE – An extra billion dollars can go fast.

A panel of New Mexico legislators is in the early stages of outlining an initial budget proposal that would set priorities for the $1.2 billion in “new” money expected to be available next year.

And there’s no shortage of ideas.

Perhaps the biggest bill coming due is for New Mexico’s public school system. In a landmark decision this summer, a state judge ruled that New Mexico is violating the rights of at-risk students by failing to provide them with an adequate education.

No one has offered a firm estimate on how much it would cost to carry out the judge’s order to develop a sufficient funding system, but it could eat up half of the new money.

And that’s on top of other ideas legislators are kicking around – boosting state reserves to 20 percent, overhauling the tax code and fixing roads among them.

Moreover, lawmakers say they’re reluctant to spend all the extra money. New Mexico is still emerging from a budget crisis that damaged its credit rating and almost exhausted its financial reserves.

Legislators “need to prepare for the next downturn,” Sen. Carlos Cisneros, a Questa Democrat and vice chairman of the powerful Senate Finance Committee, said in an interview. “Let’s, first of all, understand this windfall may be short-term.”

State officials also say the state has been putting off major expenses in recent years.

Next year, they say, may be the time to fill some potholes and replenish speciality funds that gave up cash to help the state pay its bills in leaner budget years.

Sen. Steven Neville, R-Aztec, said he expects the education lawsuit and state reserve levels to be major costs. Reserves are critical, he said, to avoid further downgrades to New Mexico’s bond rating.

After that, Neville said, “We’re going to have lots of folks with their hand out. We’re going to need to fix some holes from the last few years when we didn’t have a lot of money.”

Oil boom

An oil boom in the southeastern part of the state is fueling New Mexico’s budget growth, economists say.

Recurring revenue in the fiscal year that begins next July is expected to hit $7.5 billion, or nearly $1.2 billion above this year’s spending levels.

The Legislative Finance Committee proposes a budget each year that serves as a blueprint for the legislative session that starts in January. The committee discussed an outline during a meeting in Taos last week and will continue budget talks throughout the fall and winter.

The new governor will also issue a budget proposal next year.

Democrat Michelle Lujan Grisham and Republican Steve Pearce are competing to take office Jan. 1, two weeks before the 60-day legislative session starts.

Proposals

Early discussions among members of the Legislative Finance Committee made it clear just how quickly the extra money could be spent. Among the ideas that surfaced in last week’s meeting and in interviews:

• Establishing a funding plan for public education to respond to the court ruling.

Sen. John Arthur Smith, a Deming Democrat and chairman of the Senate Finance Committee, said he’s heard estimates ranging from $350 million to $900 million.

“Right now, we’re speculating on what that additional cost is going to be,” Smith told his LFC colleagues last week.

Some education improvements, of course, may not require extra money, and Judge Sarah Singleton didn’t set a specific funding level that needed to be reached.

• Maintaining reserves of 20 percent of state spending levels. Reserves are already approaching that figure.

New Mexico finished the most recent fiscal year with reserves of nearly 19 percent, according to the most recent estimates. Reserves could climb still higher by next summer, depending on economic growth and other factors.

• Reducing the backlog of people waiting for developmental disability services under the “DD Waiver” program. Some families wait more than a decade for a loved one to start receiving services under the Medicaid-funded program.

It would cost the state about $65 million a year to reduce the waiting list by half, though that much might not be necessary the first year, according to legislative estimates.

• Overhauling the state tax code. Supporters say the changes should be revenue-neutral, but legislative analysts have suggested setting aside a buffer of $200 million, just in case.

The goal is to reduce New Mexico’s gross receipts tax rate by eliminating a variety of deductions, credits and loopholes, simplifying the tax code overall and reducing the volatility in state revenue.

• Providing pay raises to public employees, perhaps targeted for police, corrections and public safety workers.

• Shoring up New Mexico’s pension system for teachers and public employees. The state and other government agencies, in addition to the employees themselves, might have to contribute more to the system.

• Replenishing certain funds that were tapped when the state needed cash to pay its bills. Some legislators also want to repay school districts that had to give up some of their cash balances to help the state budget.

• Catching up on one-time expenses. Ideas include improving state roads, extending broadband internet services into rural areas and funding infrastructure projects to aid in economic development.

• Providing extra money for early childhood education programs and mental health services.

Journal Capitol Bureau Chief Dan Boyd contributed to this article.