Revenue forecast: NM took in $390 million more last year than previously projected

SANTA FE — New Mexico took in $390 million more in the just-ended budget year than previously projected, giving lawmakers more wiggle room to respond to federal reductions to health care and food assistance programs.

But a projected decrease in oil prices and a tepid outlook for future job growth could signal a looming slowdown to the state’s recent revenue boom, top state budget officials told lawmakers during a Tuesday committee hearing.

Those trends could also complicate the state’s ability to absorb the federal funding changes on a long-term basis, assuming the reductions are left in place.

The top budget official in Gov. Michelle Lujan Grisham’s administration, Finance and Administration Secretary Wayne Propst, said the larger-than-expected revenue collections could allow lawmakers to put more money into two new state trust funds created this year — a behavioral health trust fund and a Medicaid trust fund.

“We’d like to see those filled up as soon as possible,” Propst told members of the Legislative Finance Committee at a Tuesday meeting in Las Cruces.

Moving more state dollars into the trust funds could be the primary focus of a special session Lujan Grisham is expected to call next month.

Top Governor’s Office staffers have been meeting with legislative leaders in recent weeks about a special session spending package that could exceed $400 million, according to lawmakers involved in the discussions.

The federal budget bill signed by President Donald Trump could lead to more than 90,000 New Mexico residents losing health care coverage and the possible closure of rural hospitals, state health officials have warned.

The federal budget bill is projected to cost the state an average of $206 million per year over the next five years, executive and legislative branch economists projected.

Sen. George Muñoz, D-Gallup, the LFC’s vice chairman, said he’s especially concerned about federal changes to the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps, and said most state agencies should expect largely flat budgets in the coming year.

“We’ve put a lot of money out into the economy, but we haven’t seen the returns,” he said during Tuesday’s hearing.

Muñoz also expressed concern that some of the state’s revenue growth has been caused by rising inflation, which boosts state gross receipts tax revenue but negatively affects consumers.

But Lujan Grisham described the new state revenue estimates as good news, given the state’s future funding challenges.

“Today’s announcement that our state can expect nearly a half-billion dollars in additional revenue will help us protect the essential services for New Mexicans that Washington has abandoned,” the governor said in a statement.

Positive trends amid looming uncertainty

Despite the uncertain future, the revenue estimates released Tuesday show positive recent state labor trends.

New Mexico averaged 1,817 new jobs created per month over the first six months of this year, with 2,900 jobs added in June alone, according to Taxation and Revenue Department data.

Much of that job creation was in the construction, health care and education fields. Meanwhile, the state lost jobs in the leisure and hospitality industry and also saw its number of federal workers decline.

The state’s overall growth in gross receipts tax revenue and positive investment returns were among the reasons the state took in more revenue during the fiscal year that ended in June than was projected eight months ago.

“The base is higher, but the expectation for growth is lower,” said state Taxation and Revenue Department Secretary Stephanie Schardin Clarke.

Surging oil production in southeast New Mexico’s Permian Basin has been a primary driver of the state’s revenue boom over the last several years, while also allowing lawmakers to set aside millions of dollars in the newly-established trust funds for future use.

Despite a recent dip in oil prices, the New Mexico State Land Office announced Tuesday it had broken a revenue record from oil and gas leases, driven by a newly implemented 25% royalty rate on certain extraction activities in the Permian Basin.

The agency recorded $256 million in revenue at an August auction, in which 10 leases were offered in Lea and Eddy counties. Nine of the leases included the new rate.

Preparing for ‘rainy days’

Looking ahead, legislators are projected to have roughly $485 million in “new” money during the coming fiscal year — a figure that represents the difference between projected revenue levels and current total spending.

That budgetary windfall could allow for additional backfilling of safety net programs like Medicaid and SNAP.

Senate Minority Whip Pat Woods, R-Broadview, said Tuesday some of the money could also be used to provide tax breaks for New Mexico residents, after a tax package approved by lawmakers this year was vetoed by the governor.

But Rep. Derrick Lente, D-Sandia Pueblo, said legislators should also continue with the strategy of investing some incoming revenue for future use.

“We’re not just blowing money,” he said. “We’re putting it away for rainy days.”

In fact, with the total value of the state’s various permanent funds having recently surpassed $64 billion, investment income is on track to overtake oil and natural gas as the state’s primary revenue source in the coming years, Propst said.

But the state’s investment largesse could also prompt a new debate over how much of the money should be invested — and how much should be spent more immediately.

“We are a very, very fortunate state and it is ironic that we have the poorest population in the nation,” said Rep. Rebecca Dow, R-Truth or Consequences, during Tuesday’s hearing.

Journal business editor Matthew Narvaiz contributed to this report. Dan Boyd covers state government and politics for the Journal in Santa Fe. Follow him on Twitter at @DanBoydNM or reach him via email at dboyd@abqjournal.com.