SANTA FE – The fallout over New Mexico’s massive budget crunch is still reverberating, as a national credit rating agency has downgraded the state’s top rating for general obligation bonds and suggested further hits could be forthcoming.
Moody’s Investor Service said in its announcement that the rating downgrade was driven by concern over the “depletion of general fund” reserves, even after state lawmakers approved a $350 million-plus solvency package during a recent special legislative session.
Rep. Patricia Lundstrom, D-Gallup, said Wednesday that the downgrade could affect communities around the state, because it could lead to higher borrowing rates for infrastructure projects.
“Because we’ve created no new money, all we’re doing is a shell game,” Lundstrom told the Journal. “We’re just moving the funds around.”
However, the top budget official in Gov. Susana Martinez’s administration said it’s not a given that future borrowing rates will be increased, as bond repayment rates will likely be market-driven.
The budget official, Finance and Administration Secretary Duffy Rodriguez, also pointed out that New Mexico’s bond rating is still high – it’s now AA1 instead of the top AAA rating – even after the downgrade.
“Given the extent of the oil and gas crash, we weren’t surprised by the downgrade,” Rodriguez said Wednesday. “That’s still a really strong, high rating.”
She also said state officials and legislators need to prioritize rebuilding New Mexico’s cash reserves.
New Mexico revenue levels have plummeted in the past two years, largely because of decreasing oil and natural gas prices, and state cash reserves have dwindled from $613 million at the start of the 2016 budget year to an estimated $37 million for the current, 2017 fiscal year – or less than 1 percent of state spending.
And that’s after the Legislature approved a mix of spending cuts and one-time fixes during the seven-day special session that ended Oct. 6.
Moody’s decision to downgrade New Mexico’s bond rating for general obligation bonds is not unique – Alaska’s credit rating has been downgraded twice this year – as other energy-reliant states have also struggled to fund government operations after big drops in oil and natural gas prices.
Although the credit rating agency noted that New Mexico has a history of taking timely action to maintain a balanced budget, it expressed concern about below-average state wealth levels and placed a “negative” designation on the state’s rating outlook.
Dan White, a senior economist for Moody’s Analytics, a separate arm of the national credit rating agency, told state legislators during a Wednesday hearing at the Roundhouse that states should be preparing for the possibility of a new national economic recession within the next few years.
But he cautioned against shifting too much money into reserves in a short time period, saying such a move could have negative consequences for state and local economies.
Meanwhile, there are new funding challenges on the horizon, as state Human Services Department Secretary Brent Earnest told members of the Legislative Finance Committee his agency is requesting a $117.9 million Medicaid funding increase – or 11.4 percent – for the budget year that starts in July 2017.
Medicaid is a joint state-federal health care program that provided health insurance for more than 880,000 New Mexicans as of last month. Medicaid currently makes up about 15 percent of total state spending.