SANTA FE – The amount of “new money” available to New Mexico lawmakers for spending in next year’s budget could be a lot less than previously projected – as much as $100 million less – due to an ongoing dip in oil prices, top-ranking legislators said this week.
The expected decline in revenue over budgeted spending would mean less money for public schools, health care, prisons and other state programs. State economists will release their official twice-yearly estimates next month.
Less new money also could stymie plans for major tax cuts.
“We think the budget is simply not going to be big enough to accomplish major tax reform,” Finance and Administration Secretary Tom Clifford, a Gov. Susana Martinez appointee, told members of a key legislative panel Wednesday.
But Clifford said some “targeted” tax breaks aimed at improving the state’s economy – with a smaller revenue hit – will still be pursued during the coming 60-day session.
In all, Sen. John Arthur Smith, D-Deming, said the drop in oil prices means lawmakers will likely have roughly $200 million in new money to spend during the session, down from the $285 million figure that was projected in August.
“It should concern every New Mexican,” Smith, chairman of the Senate Finance Committee, told the Journal.
Meanwhile, Rep. Luciano “Lucky” Varela, D-Santa Fe, chairman of the Legislative Finance Committee, said the amount of new money will likely be revised downward by between $50 million to $100 million.
New money is defined as the difference between this year’s state spending – about $6.2 billion – and the amount of revenue available to be spent in the coming fiscal year.
New Mexico relies heavily on the oil and natural gas industries to fund state operations – about 19 percent of state general fund revenue comes directly from oil and gas taxes and royalties – but the energy industries are historically volatile.
While oil production in the state has boomed since 2007, a drop in crude oil prices since September is to blame for the worsening state revenue picture.
In addition to next year’s spending, the dip in oil prices also could affect state cash reserve levels for the current budget year, Clifford said.
Cash reserve levels were projected in August to end the current budget year, which began in July, at $697 million, or roughly 11.3 percent of the $6.2 billion state budget.
However, Clifford said the state is well-prepared to absorb the drop in oil prices.
“The state is still on very stable financial footing,” he told members of the LFC during Wednesday’s hearing.
While bad news for the state’s bottom line, the drop in oil prices has been a positive for consumers at the gas pump. New Mexico gasoline prices averaged $2.69 per gallon as of Wednesday, below the national average of $2.86 per gallon, according to AAA’s daily fuel gauge report.
One year ago, average unleaded gasoline prices were $3.02 per gallon in New Mexico and about $3.20 nationally.
Lower gas prices could mean more money available for consumer spending in other areas, though it’s still unclear how much that might offset the oil revenue decrease from a state revenue perspective, Smith said.
Smith, a key budget figure in the Legislature, also said an overall decrease in money available for spending could mean lawmakers opt to fund only essential operations and inflationary-type growth in the coming year, and not a large number of new initiatives.
“I’ve been swamped with people coming into my office seeking this new money and it’s just not there (like we thought),” Smith told the Journal.
The 2015 legislative session begins Jan. 20.