Copyright © 2020 Albuquerque Journal
SANTA FE – New Mexico may benefit from an extra $315 million in reserves as it navigates the upcoming budget year thanks to stronger-than-expected revenue during the coronavirus pandemic.
The unexpected cash is the result of economic activity that didn’t fall quite as much as state economists feared in April and May – the first full months after the coronavirus outbreak disrupted business in New Mexico, according to a presentation to lawmakers.
Dawn Iglesias, chief economist for the Legislative Finance Committee, said the economic damage was severe, to be sure, but it didn’t cut quite as deep as expected, perhaps because consumers shifted more of their spending online and federal stimulus checks gave them extra spending power.
Nonetheless, she said, the state’s budget outlook remains highly uncertain. The pace of New Mexico’s economic recovery, Iglesias said, will be shaped by the future spread of the coronavirus, development of vaccines, federal legislation and consumer confidence.
Federal action, she said, has been key already. At one point, about one-quarter of New Mexico’s workforce was supported in some way by the Paycheck Protection Program, a federal aid package for employers.
“Federal stimulus appears to have propped up a lot of consumer spending for April and May,” Iglesias told members of the legislative Revenue Stabilization and Tax Policy Committee. “We had a pretty large retail bump in May that could be explained by those one-time stimulus checks” of $1,200 to individuals.
Construction activity, including wind energy projects, was also a factor.
The better-than-expected economic activity could result in an extra $315 million to $360 million in revenue for the fiscal year that ended June 30. The final figures aren’t yet available because of a lag in how long it takes tax revenue to reach the state government.
But an extra $300 million would be enough to boost the state’s reserves from roughly $1.5 billion to $1.8 billion, increasing New Mexico’s flexibility in the budget year that ends next summer. The state, in other words, would have about 25% of its annual spending held in reserve rather than the expected 21%.
Senate Majority Leader Peter Wirth, D-Santa Fe, called it a “glimmer of positive news in otherwise challenging times.”
In a special session in June, lawmakers crafted a budget package that authorized roughly $7 billion in general spending over the course of the next year. Some of the money would come out of state reserves, pushing them down to about $818 million by next summer or about 11% of state spending, under initial projections.
Instead, all else being equal, the state might end up with $1.1 billion thanks to the extra money to start the year, or reserves of about 15%.
Lawmakers last year approved a tax package that, among other things, allowed the state to begin collecting tax revenue on internet sales.
The state Taxation and Revenue Department has said it does not have data on specifically how much revenue has been generated by the online sales tax, which is currently only collected by the state, not by cities and counties.
Iglesias warned lawmakers repeatedly Friday that the budget outlook is uncertain, depending on the course of the pandemic and other factors.
This year’s budget package also relies on about $750 million in federal coronavirus aid. The state might have to tap its reserves more heavily if the federal government doesn’t permit the money to be used to help backfill the budget.
Debbie Romero, New Mexico’s acting secretary for finance and administration, told lawmakers that state agencies are preparing for further cuts – in the range of 3% to 5% – that might eventually hit frontline services.
“Entering (this fiscal year) with higher than expected revenue and reserves – it doesn’t mean we’re not going to have tough decisions to make in January,” Romero said.
Lawmakers are set to meet Jan. 19 for a 60-day session, when they may adjust this year’s budget, in addition to adopting a spending plan for the following year.