Governor unveils $11.3 billion budget plan that includes pay raises, universal child care funding

SANTA FE — With state revenue growth showing signs of cooling, Gov. Michelle Lujan Grisham on Monday released a $11.3 billion budget plan that would increase state spending by a smaller amount than in previous years.

However, the governor’s recommendation would still boost spending by roughly $503 million over current levels — a 4.6% increase — and provide a 1% salary increase for all state workers and teachers. Law enforcement officers, wildfire crews and some emergency responders could get even larger raises.

“We feel strongly we’re still in a very good fiscal position with this budget,” Lujan Grisham’s chief of staff Dan Schlegel told reporters Monday.

As the governor readies for her final year in office, her budget plan also calls for hefty one-time spending, including $100 million for statewide road projects, $238 million for water projects and up to $200 million to overhaul the current site of the State Fairgrounds in Albuquerque — and possibly find a new home for the annual state fair.

But some of the budget proposals could be controversial during the 30-day legislative session that begins next month, such as Lujan Grisham's plan to spend an additional $160 million to pay for a universal child care initiative.

That could set up a showdown with lawmakers, as several influential legislators have expressed misgivings about the hefty price tag and rollout of the universal child care plan. The governor announced the initiative in November, saying it would remove previous income limits for receiving state-subsidized child care.

Sen. George Muñoz, D-Gallup, the chairman of the Senate Finance Committee, said legislators would look closely at possible spending guardrails for the initiative. That could include directing the state's Early Childhood Education and Care Department to tap a trust fund with a $10.9 billion projected balance to pay for universal child care.

"We're in a great place in New Mexico," Muñoz said in a Monday interview. "Just don't overspend or you're going to break the piggybank." 

The state's child care assistance program has already seen its funding increase from about $150 million in 2022 to roughly $440 million as of this year. The agency’s secretary, Elizabeth Groginsky, said Monday that additional funding infusions would be required in the coming years to keep child care “free” for New Mexico families. 

But she also said the initiative would lead to better outcomes for children in New Mexico by improving economic opportunities and better caring for their health.

As for the governor, Lujan Grisham said her final spending plan — she is barred under the state Constitution from seeking a third consecutive term in 2026 — reflects seven years of "disciplined investment" by her administration.

"Even as we confront unprecedented federal funding challenges, we remain in the strongest financial position in state history," Lujan Grisham said in a statement. "This budget puts that strength to work for families, students and communities across New Mexico." 

A spending slowdown after record-breaking growth

While New Mexico is better positioned than many other states, revenue projections were recently scaled back due to falling oil prices and lower-than-expected corporate income tax collections connected to a federal budget bill.

Specifically, revenue estimates released last week project lawmakers will have $105.7 million in “new” money available in the coming year. New money represents the difference between projected revenue and current spending levels.

To put the state’s plateauing revenue growth in context, the amount of projected new money at the same point in time one year ago was roughly $892 million.

The governor’s budget plan, released Monday, calls for spending levels for the fiscal year that starts in July 2026 to outpace projected revenue levels by about $400 million. But top Governor’s Office staffers said the new money figure does not include a one-time general fund spike of $511.9 million from the State Land Office that was generated by larger — and more lucrative — oil and gas rent and lease sales than expected. 

In addition to increased early childhood spending, the state’s Health Care Authority would also receive a spending bump under the governor’s budget plan.

Specifically, the agency would receive a $61.6 million budget increase for the coming year, a roughly 3% increase over current spending levels.

Much of that funding would go toward offsetting impacts posed by a federal budget bill signed by President Donald Trump in July, which includes reducing federal funding for states' administrative costs.

Top state health officials project up to 100,000 New Mexico residents will lose Medicaid coverage starting in January 2027, which would continue a trend that started in mid-2022.

Salary increases could be smaller than in past years 

Over the last six years, the average annual salary of New Mexico state workers has increased by 47% — from about $49,950 to roughly $73,520 per year.

Average teachers salaries have also increased at a slightly slower rate, jumping from $49,770 to $68,670 annually.

With the state now facing a revenue slowdown, the likelihood of another round of large pay raises in the coming year appears to be slim.

However, the governor's budget plan would appropriate an additional $62.7 million to pay for a 1% salary hike for state employees and educators. It also calls for an additional 6% salary bump for law enforcement and emergency fire response personnel.

While the Legislature has not yet issued its own spending plan for the coming year, Muñoz said a similar-sized salary increase will likely be included. 

Meanwhile, the Governor's Office also indicated Monday the spending plan has the capacity to allow for a $300 million tax package that would be phased out over three years and would require separate legislative approval.

Tax changes included in such a package could include a $50 million tax refund for Quantum computing research, as New Mexico has already issued financial incentives for start-up companies in the advanced technology industry. 

But the Governor's Office indicated it does not envision a rebate for New Mexico taxpayers being part of such a tax package. The state last issued such rebates — of $500 per person — in 2023.

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.