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SANTA FE – New Mexico’s revenue bonanza continues to fill the state’s coffers at an unprecedented clip, with a legislative economist telling lawmakers Friday that revenue collections for the current budget year are tracking at more than $440 million higher than projected in December.
The growth is due to a combination of factors, including an ongoing surge in oil production and a larger-than expected increase in statewide wages and employment levels that have boosted personal income tax revenue.
While many New Mexicans are struggling with inflation, the rising cost of goods and services has also meant gross receipts tax collections are tracking $248 million higher than expected four months ago, Legislative Finance Committee chief economist Ismael Torres said Friday during a committee hearing at the Roundhouse.
Already, the overall state revenue windfall allowed lawmakers to increase state spending to $8.5 billion – or by about 14% – for the budget year that starts in July, with teachers and state employees set to get hefty salary increases and taxpayers set to receive rebates of up to $1,000 per family.
But New Mexico’s revenue super haul – which includes more than $26 billion in federal pandemic relief funds – could allow for even more spending infusions in the coming year if current trends hold.
“It feels like we’re in a position where we really have an opportunity to make significant investments right now,” said Senate Majority Leader Peter Wirth, D-Santa Fe. “This is an opportunity that in the 18 years I’ve been here, I’ve never seen before.”
Legislative Finance Committee Director David Abbey said lawmakers should consider setting aside much of the new money in endowment funds for college scholarships or other purposes.
One funding possibility could be the state’s Opportunity Scholarship program, he said, which covers all tuition and fees for qualifying New Mexico students and received $75 million in total funding during this year’s legislative session. The scholarship program could eventually end up costing more than $100 million per year to maintain, according to legislative data.
In addition, legislative officials also expressed concern about New Mexico’s ongoing reliance on the oil and gas industries as a revenue source, as the extractive industries made up about 38% of state revenue during the 2021 budget year.
“As revenues decline from oil and gas production, we expect budget needs to grow,” Torres said.
Several Republican lawmakers also said during Friday’s meeting of the interim Revenue Stabilization and Tax Policy Committee that lawmakers should take a cautious approach to spending budget surpluses given the uncertainty over future oil and gas production.
While some Democratic lawmakers have raised concern over the extractive industry’s role in climate change, Sen. Bill Burt, R-Alamogordo, said additional state regulations on oil and gas operations could “choke” production and hurt state revenue levels.
Currently, much of the state’s revenue windfall is flowing into an early childhood trust fund established in 2020. That’s because lawmakers set up the fund to benefit from robust tax collections on oil and natural gas production.
However, the fund’s explosive growth – it’s projected to balloon to more than $4 billion by 2025 – has prompted lawmakers to consider legislation that would make it easier to use the fund for other child-related programs.
Meanwhile, New Mexico revenue collections might be tracking higher-than-expected in several key areas, but they are lagging behind December projections when it comes to state investment income.
In large part, that’s because rising interest rates have caused investments managed by the State Treasurer’s Office to decline in value, according to legislative data.
At least some of the state’s revenue windfall might have to be put to use replacing federal funds and covering obligations that include increased taxpayer contributions into the state’s teacher retirement fund.
In all, those recurring budget needs could total $266.3 million for the fiscal year that starts in July 2023, according to legislative data.