Revenue outlook brightens, but future hazy - Albuquerque Journal

Revenue outlook brightens, but future hazy

New Mexico lawmakers will face uncertain state revenue levels when they return to the state Capitol for a 60-day legislative session in January. (Eddie Moore/Journal)

Copyright © 2020 Albuquerque Journal

SANTA FE – With the help of some federal relief measures, New Mexico appears to have kept its revenue levels from plummeting to the low levels that were projected three months ago.

But the state’s budgetary outlook remains hazy for future years, according to new revenue figures released Wednesday by legislative and executive branch economists.

That’s because uncertainty over the ongoing coronavirus pandemic, state employment levels and oil and natural gas prices could mean less money available for spending on public schools, roads, health care and other programs.

“We are in unprecedented times, and we just don’t know what’s going to happen,” Sen. Clemente Sanchez, D-Grants, said during a meeting of the Legislative Finance Committee at the state Capitol. “It’s scary.”

In all, the state could have anywhere from $6.8 billion to $7.6 billion available in the coming budget year, according to the newly released revenue estimates.

That’s up significantly from the $6.2 billion estimate from June, but a far cry from the pre-pandemic projection of slightly more than $8 billion.

Currently, the state’s budget for the fiscal year that started in July authorizes about $7.2 billion in total spending – after being pared back by lawmakers during a special session this summer.

In addition, the state’s cash reserves could be even larger than previously projected – more than $500 million above a June estimate – as construction activity and better-than-expected consumer spending boosted state gross receipts tax collections during the first half of 2020.

But some of that spending was supported by expanded federal unemployment benefits, stimulus checks and other temporary measures, and it’s unclear whether additional federal assistance to states will be approved by Congress.

Rep. Patricia Lundstrom, D-Gallup, the chairwoman of the House Appropriations and Finance Committee, said she was “cautiously optimistic” about the state’s improved revenue outlook.

While lawmakers will get revised revenue estimates before the start of next year’s 60-day legislative session, Lundstrom said she did not foresee major spending cuts to balance the state’s budget.

“We can see the economy is improving,” Lundstrom told reporters after Wednesday’s hearing. “Things are coming back, but it’s a slow process.”

Gov. Michelle Lujan Grisham’s administration has directed state agencies to prepare for spending reductions of 5% in the coming budget year, though Lujan Grisham said this week she did not believe employee furloughs would be necessary.

“Despite the many economic uncertainties, we are pushing forward as a state to ensure we continue to deliver services to New Mexicans,” said acting Finance and Administration Secretary Debbie Romero. “There are many factors beyond our control, but we can control our spending and allocation of funds.”

70,500 jobs lost

In-state retail sales dropped sharply after the COVID-19 pandemic hit New Mexico in mid-March, as many stores were forced to close under a state public health order.

In addition, New Mexico lost 70,500 jobs during a one-year period that ended in August, with most of those losses occurring in the leisure and hospitality industries, according to the Lujan Grisham administration.

But there have been bright spots, at least from a revenue perspective.

A 2019 bill that allowed New Mexico to levy a gross receipts tax on internet sales has bolstered the state’s coffers, as state tax revenue from out-of-state sales surged by more than 100% over the previous year’s levels during the initial months of the pandemic, according to data from two state agencies.

“All I can say is thank goodness we were able to put the GRT on internet sales before this started,” Taxation and Revenue Secretary Stephanie Schardin Clark told lawmakers Wednesday.

Also, while oil prices also plummeted this spring, they have since increased – though not to previous levels – and shown signs of stabilizing.

Sen. John Arthur Smith, D-Deming, the LFC’s chairman, urged legislators and the Lujan Grisham administration to come up with a long-term budget plan after wild revenue swings in recent years caused state spending levels to fluctuate.

“This state cries for a revenue stream that is going to supplant the generosity from the oil and gas industry over the years,” said Smith, who was defeated in the June primary election and will leave the Legislature at the end of this year.

Serious challenges

While New Mexico’s revenue situation might be better than expected, the state’s economy faces serious pandemic-related challenges.

Republican lawmakers pointed out Wednesday that the state’s unemployment rate is among the nation’s highest – it was at 11.3% as of August – and a state jobless fund has been depleted, prompting a state agency to request a federal loan to continue paying benefits.

“Make no mistake: The state budget is being temporarily stabilized by federal dollars that are supporting unemployed New Mexicans as we enter the eighth month of the forced economic shutdown,” said House Minority Leader James Townsend, R-Artesia.

LFC economist Dawn Iglesias said that some employees who lost their jobs during the initial months of the pandemic have been hired back, but that there appears to be a scarcity of new job postings.

She also said the state’s ultimate revenue situation going into the 2021 legislative session could depend largely on whether an additional federal aid package is approved – and how much money New Mexico might get under such a proposal.

The 60-day legislative session starts in January.

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