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Another NM credit downgrade on horizon?

SANTA FE – New Mexico budget cuts for higher education and K-12 public schools have caught the eye of a national credit rating agency, which has described the cuts as potentially negative for school and community college bond ratings.

Moody’s Investor Service already downgraded the state’s rating for general obligation bonds – from AAA to AA1 – last week and suggested further hits could be forthcoming due to plummeting New Mexico revenue and cash reserve levels.

In the latest development, Moody’s warned in its weekly credit outlook for investors that a budget-cutting bill signed into law Monday by Gov. Susana Martinez could put school districts in a financial bind and possibly lead to cuts in administrative expenses, since mid-year staffing cuts for public schools are generally prohibited by union contracts.

“The state’s willingness to target educational funding to close budgetary gaps is credit negative for all institutions of learning, but particularly school districts, which tend to operate within narrow margins,” the credit outlook states.

However, the designation of the spending cuts as a “credit negative” does not mean an imminent rating downgrade for school districts’ credit scores, said David Jacobson, a senior communications official for Moody’s.

The budget cuts were one part of a $350 million-plus solvency package approved by lawmakers during a recent special legislative session in response to a massive state budget shortfall.

Universities and colleges face a 5 percent funding reduction under the solvency legislation – totalling $39.6 million – while public schools face a 1.5 percent cut, plus the loss of more than $17 million in funding for transportation, instructional materials and other expenses.

The cuts were prompted by plummeting oil and gasoline prices that caused the state’s tax collections to end up falling short of what had been expected by more than $1 billion over the course of the just-completed and current budget years.

More belt-tightening could be necessary during the 60-day session that begins in January, as the recently approved solvency package still leaves the state facing a projected revenue shortfall of about $100 million.

Lawmakers have expressed concern about the state’s revenue volatility, with several legislators saying New Mexico is too reliant on taxes and premiums associated with the oil and natural gas industries.

“If we don’t start doing something (different), our sources of revenue are going to be just like a seesaw,” said Senate Minority Leader Stuart Ingle, R-Portales, during a Legislative Finance Committee hearing last week. “We’re going to have to make some really hard decisions.”

Moody’s had previously put the credit scores of several New Mexico universities, including University of New Mexico and New Mexico State University, under review for possible downgrade. The recent credit outlook did not address those ratings.

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