Copyright © 2019 Albuquerque Journal
RED RIVER – For the second straight year, New Mexico lawmakers will likely have a mountain of money available for spending on public schools, roads, health care and other programs.
The state will have an estimated $907 million in “new” money available in the coming budget year due primarily to unprecedented oil production levels and related economic growth in southeast New Mexico, according to new revenue figures released Wednesday by legislative and executive economists.
“The future looks good for New Mexico,” said Sen. Carlos Cisneros, D-Questa, during a joint meeting of two legislative interim committees in Red River, where the new revenue numbers were unveiled.
Overall, the state is on track to spend more than $7 billion in year-over-year spending this budget year, while revenues are expected to reach an all-time high of nearly $8 billion for the 2021 budget year, which starts next July.
New money is defined as the difference between projected incoming revenue and current state spending levels.
In addition, the state is on pace to have nearly $2.3 billion in reserves at the end of the current budget year, giving legislators options for possible one-time cash infusions – such as road repairs and shoring up the state’s two large public retirement systems.
It’s a remarkable budgetary turnaround for New Mexico, as just two years ago lawmakers were forced to deplete the state’s cash reserves, approve spending cuts and take other austerity measures in response to an economic downturn.
Already, the $7 billion spending levels in the budget signed into law in April by Democratic Gov. Michelle Lujan Grisham represents an all-time high. And that figure could increase significantly in the coming year while still keeping healthy cash reserves.
While the oil boom is propelling the state’s upward revenue trajectory, the state has also seen steady overall job growth over the last year. The state added nearly 20,000 non-farm jobs from July 2018 through this July, said state Taxation and Revenue Secretary Stephanie Schardin Clarke.
Despite the unprecedented revenue surge, the historic volatility of the oil and natural gas industries and the state’s reliance on them for budget-balancing purposes is causing nail-biting among economists and some lawmakers.
Oil and gas-related revenue now represents roughly 35% of the state’s direct revenue base, while making up about 75% of the state’s revenue growth from the 2018 to 2019 budget years.
Revenue levels for next year could end up falling at least $1.4 billion below projected estimates if energy prices were to dip significantly and active rig counts were to drop off, according to an analysis done by state economists.
“The state’s long-term economic outlook is highly dependent on the oil and gas industries,” Finance and Administration Secretary Olivia Padilla-Jackson, Lujan Grisham’s top budget official, said during Wednesday’s hearing.
She also warned lawmakers about previous New Mexico boom-and-bust cycles, saying, “We really need to be cautious about building our recurring budget.”
Some lawmakers also called for spending restraint, pointing out rapid state spending growth under former Gov. Bill Richardson was followed by steep budget cuts.
House Minority Leader James Townsend, R-Artesia, said the additional dollars should be targeted at one-time expenditures – including rural broadband expansion and overhauling the state’s gross receipts tax system.
“Using this money to permanently expand the size of state government will only set up future state leaders for failure,” Townsend said.
But while drilling growth in the Permian Basin is expected to slow, New Mexico oil production is still forecast to increase by roughly 20% in the current budget year and an additional 12% in the 2021 fiscal year, according to the Legislative Finance Committee.
New permanent fund?
One idea floated Wednesday by the Lujan Grisham administration as a way to manage the state’s revenue volatility is the creation of a new state permanent fund that would be used to expand early childhood programs statewide.
As much as $100 million from the state’s current budget windfall could be funneled into such a fund in the next three years, with possibly around $50 million generated annually for programs such as home visits and child-care assistance, Padilla-Jackson said.
Past efforts to take more money from New Mexico’s already-existing Land Grand Permanent Fund – currently valued at $18 billion – for early childhood programs have ended up stuck in political quicksand in the state Senate, including during this year’s 60-day legislative session.
Creating a new permanent fund would be a way to end that debate while putting some of the state’s budget surplus to work, Padilla-Jackson said.
“(The governor) wants to get a permanent revenue stream for that purpose,” she said. “I think it’s a really smart thing to do.”
She also said creation of such a fund would require legislative approval, but would not need to be enshrined in the state Constitution – as are the state’s other permanent funds.
Rep. Javier Martinez, D-Albuquerque, a leading proponent of the permanent fund push in recent years, sounded a cautious tone about the new proposal on Wednesday, saying it might not provide enough money to cover the need for early childhood programs statewide.
“It’s an important step in the right direction and I’m encouraged the Legislature is recognizing the importance of a quality early childhood system,” Martinez told the Journal. “But the best reliable source in all state government is the Land Grant Permanent Fund.”
Lujan Grisham could place the proposed new permanent fund on the agenda for the 30-day legislative session that starts in January. Passing a new spending plan will top lawmakers’ to-do list for the session.