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Wall Street notices as NM financial reserves rebound

Copyright © 2018 Albuquerque Journal

SANTA FE – New Mexico is on track to rebuild its financial reserves – once nearly exhausted – to an “extremely strong” 34 percent by next summer, a sign of the state’s improved budget outlook, Wall Street analysts say.

S&P Global Ratings on Wednesday announced that it has removed its “negative” outlook for New Mexico’s bond rating and now believes the state is “stable.”

The oil boom – driven by hydraulic fracturing in southeastern New Mexico – puts the state in strong position to put away extra cash now to help survive future economic downturns, according to the analysts at S&P Global Ratings.

The state now projects general fund reserves equal to about 34 percent of its recurring spending by June 30, the end of the fiscal year. A little over a year ago, the state was projecting reserves of 0.4 percent.

The S&P Global Ratings analysts said New Mexico has “generally strong budget management practices” and noted that the state had acted quickly in the past to adjust its budget when needed.

The new federal defense bill will also help New Mexico’s federal workforce, which includes two national laboratories, three Air Force bases and White Sands Missile Range, according to S&P Global Ratings.

There’s also a good climate for business in general, the analysts said.

“We believe that relatively low taxes, recent changes to the tax structure, good transportation infrastructure, and affordable costs, as well as the spinoff scientific research from the Sandia and Los Alamos national labs, contribute to a favorable climate for business growth,” S&P Global Ratings said in its report.

Nonetheless, the agency highlighted some potential weaknesses.

New Mexico depends heavily on volatile oil and gas revenue, its population growth trailed the national average over the past decade, and its retirement system for public employees has “high unfunded pension liabilities,” the agency said.

Unemployment is also high, and per-capita income has fallen further and further behind the national average, according to S&P Global Ratings.

To improve its overall credit rating, New Mexico needs “a more diverse economic base,” less subject to volatility.

The agency didn’t change New Mexico’s underlying “AA” credit rating for general obligation debt, meaning the state is still believed to have a very strong capacity to meet its financial commitments.