Copyright © 2018 Albuquerque Journal
SANTA FE – New Mexico’s incredible surge in revenue may not last – all the more reason to keep stuffing some of the cash into reserves, the state government’s top economists said Monday.
But even then, there could be an extra $950 million available to invest in capital projects, such as buying new school buses, repairing state prisons and office buildings, and covering similar one-time expenses, officials said.
The revenue boom – driven by oil production in southeastern New Mexico – is a remarkable turnaround from two years ago, when the state endured damage to its credit rating and nearly depleted its cash reserves.
All told, state economists projected about $1.1 billion in “new” money – or revenue beyond this year’s spending levels – for the budget year that will begin July 1.
Nonetheless, the economists urged lawmakers to be cautious about new spending. Monday’s forecast, delivered in a meeting of the Legislative Finance Committee, is a little less optimistic than one released in August, when $1.2 billion was projected.
Altogether, about $7.4 billion in recurring revenue is expected for the next fiscal year. The state is on track to spend about $6.3 billion in the current budget year.
But state economists warned of significant risks to the revenue forecast – partly because of New Mexico’s dependence on the volatile oil industry. A recession may also be approaching, they said, and there are hundreds of millions of dollars in unresolved tax protests or related litigation.
“It makes us pretty apprehensive,” state Sen. John Arthur Smith, a Deming Democrat and chairman of the Senate Finance Committee, said of all the warnings.
The extra money comes as the state faces pressure to sharply increase school funding – in response to a blistering court opinion that found New Mexico is violating the rights of at-risk students by failing to provide a sufficient education.
Smith said it’s too early to determine how the latest forecast will shape the discussion over school funding and other needs.
But the projections released Monday mean lawmakers and Gov.-elect Michelle Lujan Grisham will have plenty of options when they convene next month for a 60-day legislative session. It’ll be the first since Democrats swept every statewide office in the general election and expanded their edge in the state House.
The state is now on track to finish this fiscal year with reserves equal to about 40 percent of spending levels, unless more spending is authorized.
The state Department of Finance and Administration is recommending reserves of at least 25 percent.
That could leave perhaps $950 million in cash that could be applied to capital projects, said Duffy Rodriguez, secretary of the department.
The state has hundreds of millions of dollars in deferred maintenance in state buildings to catch up on, she said, especially in the Corrections Department. Funding for school buses and classrooms for pre-kindergarten students may also be priorities, Rodriguez said.
But she said the full $950 million may not be available, depending on whether legislators authorize more spending on government operations this fiscal year and other factors.
To protect against downturns, legislators on the finance committee have adopted guidelines that suggest the next budget should maintain healthy reserves and dedicate a significant amount of the new money to one-time expenses – such as capital projects – rather than recurring costs, such as government operations.
Legislative economists Jon Clark and Dawn Iglesias have continued to urge restraint as the new money rolls in. They noted in a report released Monday that New Mexico had a similar boom in revenue about a dozen years ago, but it didn’t last and the state had to slash the budget later.
“Combined with growing concerns about a possible impending recession, the state should proceed with caution in crafting a budget,” the economists said in a 26-page report to the LFC.
About 80 percent of this year’s revenue growth is directly related to the oil and gas industry, according to the report.
Several legislators expressed concern about potential liabilities created by the state’s complex system of tax breaks.
The state faces pending tax protests of roughly $320 million, and the figure could grow if more companies challenge their tax bills.
Rep. Jason Harper, R-Rio Rancho, said the protests underscore the need to overhaul New Mexico’s tax code. He has sought repeatedly to eliminate many of the state’s tax deductions and credits.
“We need to radically update our code,” Harper said.
Both Gov.-elect Lujan Grisham and legislators expect to release budget proposals before the Jan. 15 session.
The transition team for Lujan Grisham, a Democratic congresswoman who takes office Jan. 1, said the forecast is a reminder of the need to diversify the state economy.
“Governor-elect Lujan Grisham’s budget will reflect a commitment to ensuring that we lay the groundwork necessary to put early childhood education within reach for every New Mexico family, address the debilitating vacancy rates at departments like CYFD that puts our children at-risk, and give state employees, including educators, the respect they deserve through better wages,” Dominic Gabello, director of the transition team, said in a written statement. “It will be a fiscally responsible budget that accomplishes these goals while acknowledging the potential economic challenges forecast for future years.”