NM lawmakers could have $233 million more to spend in 60-day session than previously projected

SANTA FE — New Mexico lawmakers will have even more money available to spend in the coming year than previously thought, even as economists warn of a slowdown in explosive state revenue growth.

New revenue estimates released Monday predict legislators will have $892.3 million in “new” money available next year — a figure that represents the difference between projected revenue and current total spending levels.

That’s about $233 million more than was projected in August, with the improved outlook due to slowing inflation and an easing interest rate environment, according to Legislative Finance Committee data.

“The good news is there’s no bad news in this revenue forecast,” said Finance and Administration Secretary Wayne Propst, the top budget official in Gov. Michelle Lujan Grisham’s administration, during a Monday hearing at the state Capitol.

The budget surplus is part of a multi-year revenue bonanza, fueled primarily by record-high oil and natural gas productions in southeast New Mexico’s Permian Basin.

The state is the second-largest oil producer in the nation — behind only Texas — and oil and gas revenue make up about 35% of the state’s total revenue collections, according to legislative data.

In addition, two southeast New Mexico counties — Eddy and Lea — make up one-third of the state’s gross receipts tax revenue, despite making up only about 6.3% of the state’s population.

But the state’s reliance on oil-generated dollars has been tempered in recent years by lawmakers funneling much of the revenue bonanza into trust funds. That funding is then invested for future use, and investment earnings are set to surpass personal income taxes as the state’s second-largest revenue source this year.

“We haven’t spent it all; in fact, we’ve set aside a significant part of that for future needs,” said Propst, referring to the state’s revenue surplus.

The unprecedented revenue windfall could allow legislators to set aside a large amount of money to expand behavioral health programs in New Mexico — among other initiatives — during the 60-day session that starts next month.

It could also allow for additional tax breaks to be enacted, though leading lawmakers said they would look to offset the impact of any tax changes.

“There is a great deal to be proud of here, but this isn’t mission accomplished,” said Rep. Nathan Small, D-Las Cruces, the LFC’s vice chairman.

Federal policies could impact NM’s budget

A top legislative economist pointed out during Monday’s hearing that potential federal policy changes under the administration of President-elect Donald Trump also could impact the state’s finances.

Specifically, federal interest rate changes, tax cuts and tariffs all could affect the state budget, LFC chief economist Ismael Torres said.

“We are very dependent on federal policies,” Torres told lawmakers. “Pullbacks in federal spending could be a significant sticking point for state revenues.”

Another potential downside risk to the revenue forecast unveiled Monday is Trump’s immigration policies, according to state Department of Finance and Administration and Taxation and Revenue Department data.

The former president has vowed to implement a “mass deportation” initiative that experts have said could harm New Mexico’s construction and agriculture industries, among others.

But the revenue figures could also end up being even higher than projected, as increase in wage growth and federal defense spending could prompt greater inflows into the state’s coffers.

In all, the nearly $13.6 billion in projected revenue for the coming budget year is roughly $3.4 billion more than the state’s $10.2 billion budget. But the budget figure does not include hefty one-time spending on tax rebates, law enforcement recruitment stipends and more.

Budget requests to be scrutinized

The ongoing state revenue surge has prompted state agencies to submit budget requests with an average 18% spending increase for the coming fiscal year.

However, some lawmakers, including Sen. George Muñoz, D-Gallup, the LFC’s chairman, have cited concerns about the amount of money being requested.

“Do we really want to overspend this year and then have to pull back next year?” he asked during a recent legislative hearing.

He also referenced the fact Lujan Grisham will leave office at the end of 2026 due to constitutionally imposed term limits.

“When executives leave, they don’t care what shape the budget is in — they’re out,” Muñoz said.

During Monday’s hearing, Senate Minority Leader William Sharer, R-Farmington, said having large amounts of money can be a “curse” for state lawmakers due to the large number of budget requests that are proposed.

In all, about $290 million in appropriated but unspent state dollars was reverted after the 2024 budget year, according to LFC data. About half of that amount stemmed from one-time appropriations.

The revenue estimates released Monday will be used as a roadmap as lawmakers begin drafting a budget for the fiscal year that starts in July 2025.

Both the Governor’s Office and the Legislature will release their own spending plans before the 60-day legislative session starts on Jan. 21.