Pay raises for most state employees next year probably are off the table.
That’s because continued decreases in crude oil prices will translate to a sharper-than-expected drop in new revenue for New Mexico’s next state budget.
“I don’t think there’s going to be room for across-the-board compensation increases,” Gov. Susana Martinez’s budget chief, Tom Clifford, told the Journal on Monday.
One of the Legislature’s top budget makers agreed. “There won’t be pay raises,” said Senate Finance Committee Chairman John Arthur Smith, D-Deming.
Budget experts told the Legislative Finance Committee on Monday that the state will have about $141 million in new revenue for the fiscal year 2015-16 budget, less than half the $285 million in new money estimated earlier this year.
The tighter-than-expected revenues mean state agencies will have to reprioritize spending plans mapped out before oil prices tanked, Clifford told lawmakers.
While the state is not facing budget cuts, Clifford said lawmakers will have to focus the state’s limited new cash on the governor’s top priorities: education initiatives and economic development programs.
“We think in this circumstance, this is adequate money for us to prepare a responsible budget that meets the highest needs of New Mexico,” Clifford told lawmakers. “This is not a dire situation. We have to prioritize our funding.”
The Legislature this year approved 3 percent pay raises for most state workers, an expenditure that added about $90 million to the state’s budget. Providing a similar raise for state workers in the coming budget year would account for more than half of the $141 million in new money budget experts expect to be available.
“It’s going to be pretty hard to find that,” Clifford said of any additional money for across-the-board pay raises.
But that doesn’t mean all state workers will go without raises.
Clifford said the Governor’s Office is proposing targeted pay raises for state child protective service workers and State Police officers, occupations in which the state has struggled to recruit employees in part because of low pay.
Smith called the projection that new money will be less than half what budget experts previously estimated “very troubling.”
Smith said at least $70 million of the $141 million in new revenues likely will go toward state education spending, significantly cutting the amounts available for other programs.
“That leaves you with about 70 million new dollars,” Smith said. “Pretty soon you run out of resources to institute any new initiatives that one might want, whether it’s the governor or the Legislature.”
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, with about 19 percent of state general fund revenue derived from oil and gas taxes and royalties. Budget experts estimate that every $1 decline in annual average crude oil prices costs the state budget $7.5 million in lost state revenue.
Crude oil prices have dropped to less than $65 per barrel this month, down from about $90 per barrel in December 2013.
Just three weeks ago, lawmakers were bracing for declines of $50 million to $100 million from their earlier estimate of $285 million in new revenue, and Monday’s updated figures showing a $144 million decline were more severe than anticipated.
If oil prices continue to fall, the state’s spending plan could change again, Clifford said.
“All we can do is say this is our best estimate at the present time,” he said.
The state legislative session, with crafting a budget its central business, convenes Jan. 20.