Senate Finance Committee Chairman John Arthur Smith, D-Deming, said Thursday that the state is facing a deficit of more than $150 million for the budget year that ended June 30, along with prospects of a shortfall in the new budget year of between $300 million and $500 million.
Smith has urged Republican Gov. Susana Martinez to talk to legislative leaders to begin to outline solutions.
He suggests holding a special session as soon as August.
“I understand the rub with the election year … and I don’t think anybody wants to have a special session, but we have to have a balanced budget,” Smith said at a news conference.
The governor and a GOP legislative leader, however, noted that the numbers are preliminary and advised taking a deep breath.
The final figures for the 2015-16 budget year, which ended June 30, won’t be available for a few more weeks.
Martinez “is happy to discuss the state’s budget outlook with legislative leaders, but will insist that we move forward in a cautious, diligent and responsible way that protects New Mexico’s taxpayers,” her spokesman, Michael Lonergan, said in a statement that did not directly address Smith’s proposal for a special session.
“Yes, we need to be talking about it. We need to be looking at it,” said Smith’s counterpart in the Republican-led House, Appropriations and Finance Committee Chairman Larry Larrañaga, R-Albuquerque.
But once final numbers are in for the year just ended, “we’d have all the information together and then we could decide how to approach this in the best manner,” he said.
Preliminary figures released this week indicate that the state took in almost 10 percent less revenue – $543.3 million – in the first 11 months of the just-completed fiscal year than it did during the same period in the previous year. The state dipped into its reserves to cover $400 million of that, and is projected to have just $63 million in its primary cash reserves in the current budget year.
The state is on track to take in a little over $5.7 billion for the just-completed fiscal year, according to the report from the Legislative Finance Committee.
A budget of $6.2 billion was approved during this year’s legislative session for the fiscal year that began July 1, but officials say revenues are likely to fall well short of that.
Smith said he doesn’t think the final numbers for the year that ended June 30 will show enough of an uptick to avert the need for a special session, and he said waiting until the regular legislative session in January 2017 to make significant adjustments would “create a real convulsion within government.”
He proposes diverting money from the $230 million Tobacco Settlement Permanent Fund – fed by lawsuit settlements from tobacco companies – to plug the gap for the 2015-16 budget year and to at least make a dent in the projected shortfall in the 2016-17 year.
That money is intended for tobacco education and health-related initiatives, but it has also been used by the Legislature in the past to shore up other programs.
But Smith said the tobacco money likely wouldn’t be enough, and “all remedies … not just cuts, but new revenues,” should be on the table.
“State government is spending more money than it is taking in, and by law, we cannot do that,” he said in a statement.
Plummeting oil and gas prices have caused the problems, and recent increases aren’t enough to offset that, according to state officials.
Through April, gross receipts tax revenue was down 7.5 percent from the previous budget year and corporate income tax revenue was down more than 50 percent, according to the Legislative Finance Committee.
That accounts for most of the expected shortfall in the just-ended budget year.
“When oil and gas prices are down, it also directly and indirectly affects manufacturing, construction and other industries as well,” said the statement from Martinez’s office.
“While energy prices are rising slowly once again, it will take time for production and employment to ramp back up,” the statement said.
State Land Commissioner Aubrey Dunn said Thursday that for the budget year that ended in June, the State Land Office took in about $495.5 million in royalties and leases, primarily from the oil and gas industries, down about 32 percent from the $739 million collected in the previous fiscal year.
“To me, you have two issues – you have to plug last year’s budget and address this year’s,” Dunn said in an interview. “It’s probably going to have to be a combination of revenue enhancements and additional spending cuts.”
About 12.5 percent of the state’s direct general fund revenue stems from the oil and natural gas industries, according to the Department of Finance and Administration, although the figure is much higher when indirect revenue is factored in, including annual distributions from the state’s Land Grant Permanent Fund.
State Treasurer Tim Eichenberg said he told the state Board of Finance this week that from July 2015 to July 2016 expenditures have exceeded revenue by $600 million, reducing the pool of state money available for investing from $1.7 billion to $1.1 billion.
He said that’s a concern because it reduces the amount of money available for long-term investments.
Journal staff writer Dan Boyd contributed to this report.