Copyright © 2021 Albuquerque Journal
SANTA FE – New Mexico’s short-term revenue outlook is brighter than it’s been since the COVID-19 pandemic hit nearly one year ago, as higher-than-expected oil prices and production have pumped up the state’s cash reserves and its projected tax collections.
But the state’s longer-term revenue outlook remains cloudy due to uncertainty over new strains of the coronavirus and recent climate change orders issued by President Joe Biden’s administration.
In all, revenue levels in the coming fiscal year are now expected to exceed the state’s current $7.2 billion budget – which was pared back by lawmakers during a special session last summer – by $338 million. That’s double the estimated $169 million in “new money” from December.
“We better be very careful we make this money last for a while,” Senate Finance Committee Chairman George Muñoz, D-Gallup, said during a Wednesday hearing on the new revenue estimates that are compiled by legislative and executive branch economists.
Much of the projected windfall is due to a quicker-than-expected recovery of the oil industry, which declined dramatically early in the pandemic.
New Mexico, the nation’s third-biggest oil producer last year, is the only state to rebound to pre-pandemic oil production levels, according to Gov. Michelle Lujan Grisham’s administration.
In addition, Muñoz said Wednesday that the state could receive about $3 billion under a new congressional stimulus package, an amount that includes funding for public schools and local governments.
Lujan Grisham had recently pegged the figure at around $2 billion, while describing the proposed federal relief plan as a “game-changer” for New Mexico.
However, both the governor’s administration and some top-ranking lawmakers have expressed concern about the long-term budgetary impact of new federal drilling orders.
Just days after taking office last month, Biden issued an executive order to indefinitely pause all new leasing activity on federal lands so the U.S. Department of the Interior can review leasing and permitting processes.
In addition, a separate order elevated decision-making on new drilling permits to senior department staffers for 60 days.
Those orders are not expected to have a significant short-term revenue impact – in part because more than 6,000 drilling permits have been acquired but not yet used.
But Dawn Iglesias, chief economist for the Legislative Finance Committee, warned lawmakers Wednesday of “considerable” downside risk to the estimates if the federal orders are extended or expanded.
New spending plan
The new revenue estimates released Wednesday come as lawmakers are working to craft a new spending plan for the budget year that starts July 1.
A key House budget-writing committee is expected to unveil and vote on such a bill by early next week.
Once approved by the full House, the budget bill will advance to the Senate, which could make changes to the plan.
Both chambers must sign off on a final version of the budget bill before the 60-day session ends March 20 to send it to the governor’s desk for final approval.
The improved revenue outlook has allowed state agencies to submit flat – or in some cases, slightly increased – budget requests for the coming year.
Previously, Lujan Grisham’s administration had directed state agencies to prepare for spending reductions of 5%, with some exceptions.
Nevertheless, the pandemic and restrictions enacted in response to it have caused New Mexico unemployment levels to rise, and Taxation and Revenue Secretary Stephanie Schardin Clarke said some sectors of the state’s economy could be affected for years.
But she said economists now believe New Mexico could regain its pre-pandemic employment levels by the end of 2023 – not 2025 as had previously been projected.
“That’s good news, and we hope that’s sustainable,” Schardin Clarke said.
Ample cash reserves
Although the state’s long-term budgetary and economic outlook is uncertain, lawmakers are sitting on an ample cash cushion.
Even after cash reserves were used last year to help plug a budget shortfall, they are now projected to end up at $2.7 billion at the end of the current fiscal year – or 37.9% 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.
At least some of the cash reserves could be spent on one-time COVID-19 pandemic relief measures, including roughly $185 million to provide tax refunds to New Mexico workers making less than $15 per hour and to enact a four-month tax holiday for restaurants.
“We have a lot of money – we just need to proceed with caution,” said Muñoz, who added that he would urge lawmakers to keep reserve levels high for possible future use.