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Governor signs solvency bills but vetoes millions in cuts

Copyright © 2017 Albuquerque Journal

SANTA FE – Gov. Susana Martinez on Tuesday signed into law a roughly $190 million package of solvency bills aimed at plugging a budget deficit and putting the state on more stable financial footing.

Gov. Susana Martinez

Gov. Susana Martinez

However, the Republican governor used her line-item veto authority to ax $26 million worth of proposed funding reductions and other budget fixes from one of the solvency bills, including a provision that would have taken $4 million from a state “closing fund” for economic development.

The vetoes prompted criticism from Senate Finance Committee Chairman John Arthur Smith, D-Deming.

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“I really don’t think (the final package) does a lot for our reserves and our bond rating,” Smith told the Journal.

With the vetoes, the state will be left with about $120 million in reserves – or less than 2 percent of spending – for the current budget year, which ends in June.

That amount could end up being higher or lower, depending on how much revenue the state collects in the next five months.

Martinez, who has vowed to veto any tax increases approved by lawmakers, praised the solvency package in a Tuesday statement but cautioned that more budget-balancing looms.

“For the last several weeks, my staff and I met with lawmakers from both parties to make this happen,” the governor said. “While they sent over a package that isn’t perfect, I’m pleased that it doesn’t compromise our principles.”

But she also said the solvency provision to take money from the closing fund, officially known as the Local Economic Development Act, would have hurt the state’s ability to create jobs.

Other proposed funding reductions spared by Martinez’s veto pen included $4 million from a state 911 fund and $2.9 million from an infrastructure program.

She also vetoed a proposal to use $9 million from a state road fund to offset general fund cuts to two state agencies, and struck down language that would have triggered an additional 1 percent spending cut for state agencies if projected revenue levels do not materialize.

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“If further budget cuts are required, the Legislature should perform that function,” Martinez said in her executive message to leading lawmakers.

Lawmakers entered the ongoing 60-day session with the state’s budget crunch a top concern.

Both the House and Senate acted quickly last month to sign off on three solvency bills aimed at bridging a projected $69 million budget deficit and replenishing the state’s depleted reserves, though a fourth solvency bill has been languishing in a House committee.

The governor used her line-item veto authority on one of the three bills, as the other two were signed without changes.

One of those approved bills will reduce funding – by a total of roughly $46 million – for most New Mexico school districts, and require them to offset the reduction out of cash balances.

The bill is not expected to lead to school closures or teacher layoffs, and will not affect classroom spending, according to the Public Education Department.

However, Charles Goodmacher, the director of government relations for the National Education Association-New Mexico, a teachers union, challenged that claim, while criticizing the governor’s tax stance.

“Cuts to school district reserves means students will receive less personal instruction as districts continue reducing staff because the schools are not sufficiently funded,” Goodmacher told the Journal.

Martinez had initially called for $120 million to be taken out of school district reserves, but lawmakers opted for a smaller amount after lengthy debate.

The state’s largest school district, Albuquerque Public Schools, will receive the biggest hit – of roughly $12.5 million – under the school funding reduction bill.

New Mexico’s top credit rating has already been downgraded due to budget concerns, as plummeting oil and natural gas prices have led to lower-than-expected revenue collections for two straight years. And it’s unclear whether the just-approved solvency package will be sufficient to avert a second downgrade.

Legislators signed off on steep spending cuts and other one-time budget fixes in a special session last fall, but the budget-balancing moves did not go far enough to plug this year’s projected deficit.

With this year’s budget crisis apparently solved for now, lawmakers will shift their attention to crafting a budget for the coming fiscal year.

Senate Finance Committee Chairman Smith has warned that more tough decisions loom, as the state could be facing a budget shortfall in the coming year of at least $300 million – and possibly as high as $500 million.

“We have a lot that’s coming unglued,” he said Tuesday, referring to the impact of recent funding cuts on state courts and universities.

Official new state revenue estimates will be released next month.

Highlights

Gov. Susana Martinez signed three solvency bills that will generate an estimated $190 million in savings, most of it for the current budget year. Here are some key points on the three bills:

• The solvency bills will plug a projected $69 million budget deficit and leave New Mexico with about $120 million in reserves – or less than 2 percent of spending levels.

• School districts with cash balances larger than 3 percent will face immediate funding reductions. The reductions are expected to total roughly $46 million, with $12.5 million coming from Albuquerque Public Schools.

• The governor used her line-item veto authority to ax about $26 million from a bill “sweeping” money from various state programs and accounts.

• Line-item vetoes included $4 million from a state “closing fund” for business expansion and relocation. Proponents of the fund say it was instrumental in helping the state land a massive Facebook data center in Los Lunas.

• The bills take effect immediately, though it’s expected to take weeks – if not months – for some of the mandated savings to be collected.

• The governor faced a Tuesday deadline to act on the bills, as the governor has just three days to act on bills approved by the Legislature in the early stages of a session.

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