State outlook for revenue, reserves brightens - Albuquerque Journal

State outlook for revenue, reserves brightens

A 60-day New Mexico legislative session is scheduled to begin in January. Approving a new state budget for the coming fiscal year will top lawmakers’ to-do list. (Eddie Moore/Journal)

Copyright © 2020 Albuquerque Journal

SANTA FE – New Mexico appears poised to emerge from the coronavirus pandemic with an improving revenue outlook and deep cash reserves, something that looked highly unlikely six months ago.

While revenue levels took a big hit in the current budget year due to the pandemic and falling oil prices, they are expected to reach nearly $7.4 billion during the fiscal year that starts in July 2021, according to new estimates released Tuesday by legislative and executive branch economists.

That could give lawmakers the ability to target modest spending increases at public schools, broadband expansion, health care and business aid programs.

“Certainly, we’re not out of the woods yet, by any means,” Rep. Patricia Lundstrom, D-Gallup, chairwoman of a House budget-writing panel, told reporters after the new revenue estimates were unveiled at a Legislative Finance Committee meeting. “But we can see the light at the end of the tunnel.”

In addition, the top budget official in Gov. Michelle Lujan Grisham’s administration said the improved revenue outlook means state agencies will be allowed to submit flat budget requests for the coming year.

The governor’s administration directed state agencies in September to prepare for spending reductions of 5%, with some exceptions.

“We feel confident there’s sufficient recurring money to maintain budgets at a flat level,” Debbie Romero, acting secretary of the Department of Finance and Administration, said during Tuesday’s committee hearing, which was conducted remotely.

In all, revenue levels in the coming fiscal year are now expected to exceed the state’s current $7.2 billion budget – that was pared back by lawmakers during a special session this summer – by $169 million.

That forecast is much more optimistic than economists’ projections from this summer, prompting state Rep. Javier Martínez, D-Albuquerque, to tout the “very, very welcome news that our budget outlook is not as dire as previously thought.”

Even after cash reserves are used to help plug a budget shortfall this year, reserves are still projected to end up at $2.4 billion at the end of the current fiscal year – or 33.4% of state spending.

That’s due in no small part to a 2017 law that called for some state revenue in cash-flush years to be set aside in a rainy day fund.

However, the ongoing COVID-19 pandemic and business restrictions imposed to slow the spread of the virus have taken their toll on New Mexico’s economy.

Despite recent gross receipts tax growth, small businesses’ sales have dropped by about 40% as New Mexicans’ shopping habits have changed.

LFC economist Dawn Iglesias said more people are now shopping online, not inside businesses. While the state can collect sales tax on internet sales under a 2019 law, numerous small businesses have closed this year due to a drop in sales.

The impact is also being felt by workers, as employment levels in New Mexico are not expected to reach pre-pandemic levels until 2025, according to economists and top state officials.

Federal help key

The budgetary pain inflicted by the pandemic would have been much worse if not for federal relief measures, according to legislative economists.

In all, New Mexico received more than $1.2 billion under the federal CARES Act, and lawmakers approved spending $320 million of that last month on expanded unemployment benefits, small-business grants and cash assistance for low-income state residents.

If those federal funds had not been approved, New Mexico would have had to draw down its cash reserves by nearly half – or roughly $1.1 billion – to balance its budget, Iglesias said.

The revenue estimates released Tuesday also factor in the likelihood that an additional federal stimulus package will be approved in the coming months, state officials said.

But some Republicans seized on the state’s reliance on federal funding to criticize the governor and Democratic-controlled Legislature for overspending in past years.

“The only reason our state is close to breaking even is because of federal action, and not because of any real leadership being provided by our state’s executive and legislature,” House Minority Leader James Townsend, R-Artesia, said in a statement.

Meanwhile, with the federal funding infusion factored in, falling oil prices and decreased oil production in southeastern New Mexico actually accounted for more than two-thirds of the $857 million projected decline in state revenue levels during the current fiscal year.

Although economic diversification has been a common talking point at the Roundhouse in recent years, it would take more than $3 billion from other revenue sources to offset the total economic impact of the oil and natural gas industry, Iglesias said.

“I think, realistically, that amount of revenue is very difficult to replace,” said Sen. Gay Kernan, R-Hobbs.

Further relief urged

The revenue estimates released Tuesday are important because Lujan Grisham and the Legislature will release budget recommendations based on the numbers before a 60-day legislative session starts next month.

Although the full budget plans have not been unveiled, Lundstrom said the LFC would be proposing a $7.3 billion budget that would provide modest pay increases for state workers and educators.

The legislative plan would also propose hefty one-time expenditures – including a $250 million road improvement package.

Some lawmakers have also called for an additional relief package for businesses and workers hit hard by the pandemic, which could be fast-tracked once the session gets underway.

Sen. Mimi Stewart, D-Albuquerque, who was recently nominated by Senate Democrats to serve as the chamber’s next president pro tem, said Democratic lawmakers are already working on crafting such a package.

She also said the Legislature should consider proposals such as mandatory paid sick leave and increasing the state’s minimum wage.

“Now is not the time for austerity measures,” Stewart told the Journal. “Now is the time to ensure that people have money.”

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