SANTA FE – New Mexico faces the prospect of more budget cuts and painful belt-tightening in the upcoming 60-day legislative session as new state revenue estimates unveiled Monday show the state is on track to have a deficit of about $69 million for the current fiscal budget year even if all cash reserves are spent.
In addition, the revenue projected to be available for the fiscal year starting in July 2017 – slightly more than $5.9 billion – is nearly $300 million less than original state spending levels for this year.
“The challenge we have right now is we need ‘now’ money,” said Sen. John Arthur Smith, D-Deming, chairman of the Legislative Finance Committee. “We’ve got a ton of work to do between now and the end of the legislative session.”
Already, state lawmakers have slashed spending this year for universities, public schools and most state agencies – by more than 7 percent in some cases – in response to the steep revenue downturn, which is largely due to low oil and natural gas prices and their ripple effect on the state’s economy. Lawmakers also signed off on several one-time fixes during a special session held this fall.
However, the state’s budget woes show no signs of abating, with the new revenue estimates down significantly from August projections. Specifically, the state is now expected to collect much less than previously projected in both gross receipts and corporate income taxes.
Legislative and executive branch economists, who work together to come up with the official estimates, cautioned it’s hard to tell whether things will get better before they get worse.
“There’s a lot of revenue and economic uncertainty right now,” LFC economist Jon Clark said during Monday’s hearing at the state Capitol.
As of last month, New Mexico had the nation’s second-highest unemployment rate at 6.7 percent – only Alaska had a higher jobless rate – and the state’s total labor force of 866,203 workers was still lower than 2005 levels, according to LFC data.
New Mexico is one of several energy-reliant states that have been hit hard by a steep downturn in oil and natural gas prices.
Looking for cuts
Gov. Susana Martinez, a two-term Republican, has stuck to a “no tax increase” stance since taking office in 2011, leaving state spending as the primary budget-balancing option for legislators.
Rep. Larry Larrañaga, R-Albuquerque, said the sagging state revenue levels should prompt “right-sizing” of state agencies, presumably through additional budget cuts.
“We have a challenge in trying to put this thing together,” Larrañaga said.
Some state agencies have already laid off employees in response to budget cuts earlier this year, and the state’s judicial branch recently warned that it will have to temporarily halt payments to jurors and order unpaid furlough days for workers if additional funding isn’t provided.
Dan Secrist, executive vice president of the local Communications Workers of America union, said many agencies are struggling to perform day-to-day operations with low staffing levels.
“Cutting any more will mean the curtailment of services, there’s no other way around it,” Secrist said Monday.
Meanwhile, the Martinez administration’s top budget official, Finance and Administration Secretary Duffy Rodriguez, said some budget-balancing options not utilized during this year’s special session could still be considered.
Those options include taking as much as $120 million from K-12 public school reserves around the state, diverting some money out of a pension plan for legislators and reducing the take-home pay for state workers by making them pay more money into their retirement accounts so that taxpayer contributions can be lowered.
Another option floated by Rep. Paul Bandy, R-Aztec, during Monday’s hearing was levying a tax on internet sales, an idea that has been discussed occasionally in recent years.
However, Taxation and Revenue Secretary Demesia Padilla warned that such a step, if taken, would likely lead to litigation from businesses that do online sales but do not have a physical presence in New Mexico.
She said such a tax could generate around $20 million annually for New Mexico.
Call for flexibility
LFC Chairman Smith, an influential budget voice, called for more cooperation between the Legislature and the Governor’s Office to meet the state’s latest budget crisis.
He also warned legislators and state officials not to be too “entrenched” in their policy positions and overly concerned about their legacies, an apparent reference to Martinez, who has two more years in office.
While a national credit rating agency has already downgraded New Mexico’s bond rating by one notch due to concerns about the state’s budget crisis, DFA Secretary Rodriguez said she didn’t think there would be additional downgrades before the 60-day legislative session that starts in January.
“We still have very good bond ratings,” Rodriguez said.
She also said the agency was planning to push for legislation that would create a new state “rainy day” fund that could be used in the future to offset budget shortfalls. Money would be placed into the fund in years when there was a budget surplus.
Top state budget officials have already been meeting on budget-balancing options, Rodriguez said, and both the Governor’s Office and the Legislative Finance Committee are expected to roll out budget plans for next year before the session starts on Jan. 17.
In addition to fewer dollars for spending on basic state programs and agencies, New Mexico lawmakers will also have a smaller pot of money than usual – just $61.7 million – available for spending on state buildings, municipal water systems and other public works projects, according to data presented Monday.
In part, the reduced dollar amount in available severance tax bond spending is due to the fact legislators shifted the funding source for some existing projects during this year’s special session.