SANTA FE – New Mexico’s credit rating is holding steady, as a recent cash windfall allowed lawmakers to boost state spending and rebuild depleted reserves.
However, a national credit rating agency cited lingering pension concerns and high Medicaid enrollment levels as factors preventing an upgrade to the state’s AA2 rating, which was downgraded twice in a two-year period leading up to 2019. A credit rating downgrade can lead to higher borrowing costs for infrastructure projects.
Moody’s Investors Service also noted in its announcement that New Mexico personal income levels are low compared with those of other states and that Medicaid enrollment – about 40% of the state’s population is enrolled in the health care program – is among the highest in the nation.
However, the state’s rating outlook remained “stable” due to positive recent economic trends and the expectation that the state will retain strong cash reserve levels into the near future.
During this year’s 60-day legislative session, lawmakers set aside roughly 20% of state spending in reserves – or more than $1.4 billion – from a budget surplus that stemmed from an oil production boom in southeastern New Mexico.
Finance and Administration Secretary Olivia Padilla-Jackson, the top budget official in Gov. Michelle Lujan Grisham’s administration, said Tuesday that the state now uses “stress testing” to determine appropriate cash reserve levels, instead of setting arbitrary target levels.
“Importantly, the restoration of fund balances and the establishment of a new, strong reserve target that is appropriate to the state’s revenue were among the top reasons cited for the bond rating and stable outlook,” Padilla-Jackson told the Journal.
She also said it was encouraging that national credit rating agencies have taken note of the Lujan Grisham administration’s effort to stabilize New Mexico’s revenue levels, which are historically volatile due to the reliance on both federal government spending and oil and natural gas production.
But the financial condition of New Mexico’s two large public retirement systems remains an area of concern. Moody’s previously cited pension issues as a driving factor behind the state’s last credit rating downgrade, in June 2018.
Lujan Grisham in February ordered creation of a task force to study possible changes to the plans offered by one of the retirement systems, the Public Employees Retirement Association, which covers state workers, municipal employees, judges, State Police and more.
Combined, New Mexico’s two pension funds had a combined $13.5 billion in unfunded liabilities – or the difference between benefits owed and assets on hand — – as of last summer, despite 2013 solvency fixes intended to put them on more stable financial footing.