The two-term Republican governor gave the directive via a memo and in a meeting Tuesday with Cabinet secretaries. All departments under her control were given the directive, including the Public Education Department and the Human Services Department.
Some state agencies already had their budgets slashed earlier this year, and the new spending reductions could affect hiring practices, approved overtime levels, employee travel and more, the governor acknowledged in her memo.
However, state school districts and universities are not expected to be affected, because the spending reduction will be targeted at agency budgets – not the programs they run.
“In the weeks ahead, it is critical that we manage through this challenging fiscal environment in a way that protects those areas of our economy that are strong and growing,” Martinez said. “We cannot ask hardworking New Mexicans and job creators to shoulder the burden of the downturn in the global energy market.”
Recent revenue-tracking data suggests New Mexico is now facing projected budget shortfalls for both the current and just-completed budget years that could together exceed $700 million, Senate Finance Committee Chairman John Arthur Smith, D-Deming, said Tuesday. Previous estimates had put it at up to $600 million.
The budget crunch is largely due to falling oil and natural gas prices that have meant lower-than-expected tax collections in several sectors.
Smith, who said he was notified of the spending reduction plan last week by the governor, described it Tuesday as a dose of reality for any state agencies that were holding out hope for more state funding.
“I’m glad they’re at least starting with the 5 percent, but that might not be enough,” Smith told the Journal .
The spending restraint ordered by the governor could mean millions of dollars in budget savings, though Martinez said exceptions may be made for public safety and health.
It could also be part of a multipronged approach to addressing the state’s budget crunch, as Martinez is also expected to call lawmakers back to Santa Fe in the coming weeks for a special legislative session on the budget. The governor has not set a date for such a session, which would likely cost $50,000 a day, but has said she would like for it to be very short – possibly just a matter of hours.
That would likely require a deal to be struck in advance, and Martinez began holding budget talks with top-ranking lawmakers last week. Senate Finance Committee Chairman Smith and Senate Minority Leader Stuart Ingle, R-Portales, are among those who have met with the governor.
Ingle said Tuesday that it will be up to state agencies to decide how to come up with the 5 percent in budget savings, but that there’s little appetite among most lawmakers for raising taxes.
“We’ve got to look at every hole card we’ve got before we take any more money from people or businesses,” he said.
However, House Minority Leader Brian Egolf, D-Santa Fe, said additional spending cuts could harm the state’s already fragile economy and said more options should be considered, including eliminating some state tax breaks and delaying a gradual decrease – that has already been approved as part of a 2013 bill – in the state’s corporate income tax rate.
“Across-the-board 5 percent (budgetary) sanding is not the approach we should take,” Egolf said. “It’s the opposite of a surgical approach.”
He also said attempting to fix the state’s budget problems solely via spending cuts would cause “major disruptions” to state programs and agencies.
Several state agencies indicated Tuesday that they could absorb the belt tightening, though they offered few specifics on how they would do so.
The Public Education Department said it would try to minimize disruptions.
“We’re committed to providing New Mexico’s kids with the best education possible,” PED spokesman Robert McEntyre said. “We’re looking closely at our budget to find savings, and we remain committed to maintaining our core functions as a department.”
The Human Services Department, which oversees federally funded welfare programs and already had to enact Medicaid provider rate cuts in July, also suggested it would try to keep its day-to-day operations largely unaffected.
“The Human Services Department is confident we will be able to comply with the governor’s directive while continuing to deliver support services to New Mexicans who need it the most,” agency spokesman Kyler Nerison said.
In looking at ways to plug the budget gap, Martinez recently said she is sticking to a “no tax increase” stance she’s held since first taking office in 2011, despite urging from some Democratic lawmakers to consider tax hikes as a way to avoid deep spending cuts.
Although new revenue estimates will be formally unveiled later this month, the state could now be facing a $200 million-plus deficit for the budget year that ended June 30, along with a potential shortfall in the new budget year of around $500 million, Smith said Tuesday.
At least some of that budget shortfall could be plugged by tapping a $224 million tobacco fund – created after a 1999 legal settlement with big tobacco companies – though that idea has come under fire from health organizations that say the funds should be reserved for tobacco-related programs and research.
Meanwhile, majority Senate Democrats have said they will oppose any proposed spending cuts to public schools or universities, which account for about 57 percent of state spending.