Solvency plans not far apart

The Roundhouse. (Eddie Moore/Journal)

Copyright © 2020 Albuquerque Journal

SANTA FE – A gaping $2 billion hole in New Mexico’s budget would be plugged using a mix of federal stimulus funding, cash reserves and spending cuts under similar plans unveiled Wednesday by Gov. Michelle Lujan Grisham and a key legislative budget committee.

The solvency proposals will be the focus of debate during a special session that will start next Thursday, although Lujan Grisham indicated that several other issues could be added to the agenda.

The Democratic governor also said her solvency plan would largely protect public schools from budget cuts while leaving the state’s cash reserves at about 12% of spending levels – or about $873 million.

“I think it’s an incredibly responsible approach,” Lujan Grisham said during a Wednesday news briefing with reporters. “I feel as good as I can that we’re going to be in the best possible position.”

In response to the state’s worsening budget situation, both solvency plans would trim approved salary increases for teachers and state employees that are scheduled to take effect July 1.

Under the governor’s proposal, the pay raises would be cut in half, from 4% to 2%. Under the plan unveiled by the Legislative Finance Committee, they would either be reduced to 1% or scrapped.

In addition, the LFC staff recommended eliminating the $17 million for a tuition-free college program that Lujan Grisham pushed for during this year’s 30-day legislative session. That funding would be left intact under the governor’s approach.

But the governor’s and the LFC’s solvency plans align in many other areas. Both call for canceling some approved road construction and other infrastructure projects and reducing the funding for a newly approved early childhood trust fund by $20 million – from $320 million to $300 million.

Lujan Grisham said the special session is “probably not the format” to address proposed tax hikes and other revenue-generating measures, including a plan to legalize recreational marijuana for adult users that she has said could generate $100 million a year for the state.

Such tax measures will most likely be debated in January, when lawmakers could have to take additional budget-balancing steps.

“Some really heavy lifting is going to have to take place in January to stabilize revenues,” said Sen. John Arthur Smith, D-Deming, the LFC’s chairman.

Smith was defeated in last week’s primary election by fellow Democrat Neomi Martinez-Parra of Lordsburg and will no longer be a legislator when the 2021 session rolls around.

Meanwhile, Rep. Jason Harper, R-Rio Rancho, one of five legislators to vote against adopting the LFC’s solvency plan, described the proposals as election year patch jobs.

“These proposals do absolutely nothing to solve the real problem, which is reckless, out-of-control spending,” Harper told the Journal.

He pointed out that some Republicans had expressed concern about state spending growth over the past two years. He also said he thinks a Democratic-controlled Legislature will turn to big tax hikes next year to address falling revenue levels.

Changed outlook

New Mexico lawmakers were sitting on a projected budget surplus when they approved a $7.6 billion spending plan in February for the fiscal year that starts in July.

But the state’s financial outlook has changed dramatically over the past three months, due to the one-two punch of falling oil prices and a business slowdown due to the coronavirus, and LFC staffers said Wednesday the budget plan will have to be pared back significantly.

Based on new estimates released Wednesday by executive and legislative economists, the state is now projected to collect about $5.9 billion in revenue during the coming budget year – down from $7.9 billion that was projected in December.

“We’re going to have to be very, very careful about what we can afford,” said Sen. Roberto “Bobby” Gonzales, D-Ranchos de Taos.

In all, the $7.6 billion budget would be scaled back by $586 million to $652 million under the two solvency plans.

Both plans would reduce the size of the annual spending bill to about $7 billion – roughly the same level as the current year’s spending.

In addition to drawing down cash reserves, the solvency plans also hinge on the state using about $725 million from a federal coronavirus relief package to backfill state agency spending.

Although Congress did not explicitly provide states with that spending flexibility when it approved the relief package, Lujan Grisham’s chief of staff, John Bingaman, said Wednesday that the Governor’s Office is confident the spending will be deemed allowable.

Top state officials also said there are signs that New Mexico’s economy could recover quickly, even though the state has lagged in emerging from past recessions.

“We’re going to be on the rebound, I believe, a lot quicker than we have in the past,” Lt. Gov. Howie Morales said during Wednesday’s discussion with reporters.

Other issues

Although the special session will focus on budget adjustments, Lujan Grisham said Wednesday that she plans to add several other issues to the session’s agenda.

That could include making about $180 million in grant funding available to New Mexico local governments and Native American tribes, which have been hit hard by the COVID-19 outbreak.

In addition, Lujan Grisham said the Governor’s Office is working on an aid package for businesses bruised by the pandemic. The package would be funded by earmarking roughly $500 million from the state’s Severance Tax Permanent Fund.

New Mexico’s election system could also be addressed, after more than 1,300 absentee ballots were received too late to be counted in last week’s primary election.

Changes under consideration include extending the deadline for absentee ballots to be received and allowing for the November general election to be run as a mail-in election, Lujan Grisham said.

“It’s something I care about, and I think it’s necessary,” she said. “New Mexicans should expect that we will have something together that will get final shaping in the special session.”

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