Copyright © 2022 Albuquerque Journal
CHAMA – New Mexico’s revenue jackpot shows no signs of slowing down, with inflation-related consumer spending, strong wage growth and increased oil production propelling the state’s financial outlook to dizzying heights and raising new questions about how the unprecedented windfall should be put to use.
In all, lawmakers will have a projected $2.5 billion in “new” money during the budget year that starts in July 2023, according to new estimates released Wednesday by legislative and executive economists during a Legislative Finance Committee meeting in Chama.
That money, which represents the difference between current spending levels and projected new revenue, is in addition to a projected budget surplus of nearly $3.8 billion for the current fiscal year – and about $2.6 billion set to flow into a state early childhood trust fund.
Sen. George Muñoz, D-Gallup, called the revenue bonanza a “once-in-a-century” opportunity that could allow New Mexico to avert the big budget swings – cycles of spending growth followed by cuts – that have been common over the past decade.
“You can change the complete path of this state,” said Muñoz, who suggested $1 billion of the state’s mountain of revenue could be used to overhaul New Mexico’s tax code, even though such changes could have lasting budgetary impacts.
However, the revenue surge – total revenue is forecast to rise from $9.2 billion in the fiscal year just ended to nearly $10.9 billion next year – could also prompt a feeding frenzy in a state with high Medicaid enrollment levels, ageing roads and bridges, and a public school system that for years has been among the worst-ranked in the nation.
“Your phones are going to be ringing off the hook,” Muñoz told other lawmakers during Wednesday’s hearing, adding half-jokingly that legislators should get second phone numbers to screen their calls.
But some leading lawmakers and top state budget officials expressed caution, saying the recent revenue growth will likely not be sustainable in the long term.
“I think the number one thing to be cautious about is growing our budgets,” said Finance and Administration Secretary Debbie Romero, the top budget official in Gov. Michelle Lujan Grisham’s administration.
Specifically, she cited supply chain issues, a possible economic recession and the impact of the ongoing Ukraine conflict on energy markets as among the downside risks to the state’s revenue forecast.
In addition, Rep. Patricia Lundstrom, D-Gallup, the LFC’s chairwoman, said year-over-year spending growth should be kept in line with the state’s annual average over the past decade.
Already, state spending has increased by about 30% over the past three-plus years, with Lujan Grisham signing off this year on a $8.5 billion spending plan that included teacher pay raises and tax rebates for state residents.
That spending growth has drawn criticism from Republican Mark Ronchetti, Lujan Grisham’s main opponent in the Nov. 8 general election, who has said he would push to use surplus funds for annual rebates and tax cuts if elected.
But the Democratic governor sought to take credit Wednesday for the record-high revenue levels.
“The record-high revenues we are anticipating are no accident – they are a direct result of responsible fiscal policy on the part of this administration and the healthy economic climate we are fostering,” Lujan Grisham said in a statement.
Oil is driving the revenue boom
While several different revenue sources are fueling New Mexico’s latest windfall, oil production concentrated in the state’s Permian Basin is driving the boom.
Roughly two-thirds of the projected revenue growth for the coming budget year is expected to come directly from oil and natural gas receipts, said Ismael Torres, the LFC’s chief economist.
“It’s remarkable to see New Mexico is the only state that has recovered to prepandemic levels” of oil production, said Torres, who added that New Mexico is projected to produce 590 million barrels of oil during the current budget year.
As a result, the state is becoming more reliant than ever on oil and natural gas as a revenue source, with 35% of the state’s direct revenue coming from the extractive industries this year – up from 31% of all revenues during the fiscal year just ended.
Sen. William Sharer, R-Farmington, pointed out that money from the oil and gas industries far surpasses the $22.7 million in general fund revenue legal cannabis sales are projected to generate during the current budget year.
“We’re going to have to smoke a lot more dope” to catch up to oil and gas revenue levels, Sharer quipped.
He also said the state’s current tax structure puts small businesses at a disadvantage, saying, “We’ve been trying to pick winners and losers for decades.”
In all, the projected $10.9 billion in revenue for the coming fiscal year would be more than double the $5.4 billion in revenue the state took in just over a decade ago – during the 2011 fiscal year.
NM jobs 10K short of total workforce
The state’s staggering revenue situation belies more complicated economic realities.
New Mexico’s employment levels have grown steadily since plunging in the early stage of the COVID-19 pandemic, but its 4.9% unemployment rate for June was the nation’s highest, according to the U.S. Bureau of Labor Statistics.
In addition, while national employment has rebounded to prepandemic levels, the state is still about 10,000 jobs short of reaching its total workforce of 861,200 residents in March 2020, according to state Taxation and Revenue Department data.
During Wednesday’s meeting in Chama, Sen. Michael Padilla, D-Albuquerque, expressed concern about high vacancy rates and staffing issues plaguing many state agencies.
Meanwhile, House Majority Whip Doreen Gallegos, D-Las Cruces, said she would like to see specific criteria from lawmakers on how money from the state’s rapidly growing early childhood trust fund is spent.
She highlighted youth mental health as a possible priority for spending from the 2020 trust fund expected to be worth $4.8B by the end of this budget year.