New Mexico’s bond rating upgraded amid state’s push to reduce revenue volatility 

SANTA FE — Still riding the wave of an oil-fueled revenue bonanza, New Mexico’s solid fiscal standing has been reinforced by an upgrade in the state’s bond rating.

Gov. Michelle Lujan Grisham’s administration announced Monday a national credit rating agency had increased the state’s bond rating from Aa1 to Aa2, citing New Mexico’s move to set aside hundreds of millions of dollars into trust funds during recent cash-flush years.

“The rating upgrade is driven by the state’s well-established and prudent governance practices that have partially mitigated its reliance on volatile severance taxes,” Moody’s Ratings wrote in announcing its bond rating upgrade decision.

The upgrade is the first of its kind since the early 1990s for New Mexico, and could lead to lower borrowing costs for infrastructure projects.

Previously, New Mexico’s credit rating was downgraded twice in a two-year period leading up to 2019, due to lingering pension concerns and high Medicaid enrollment, among other factors.

During a Monday legislative hearing at the state Capitol, the top budget official in the Lujan Grisham administration said the bond rating upgrade could make New Mexico more attractive to out-of-state businesses looking to relocate.

“We are a credit-worthy state,” said Wayne Propst, who is the secretary of the state Department of Finance and Administration.

But he also cautioned that Moody’s and other credit rating agencies would continue to closely monitor New Mexico’s ability to weather looming federal funding reductions, which could lead to the closure of rural hospitals and up to 100,000 state residents losing their Medicaid coverage.

New Mexico has seen revenue collections skyrocket to record-high levels in recent years, due largely to a surge in oil production in the Permian Basin. The state is currently the nation’s second-highest oil producer, trailing only Texas. 

New estimates released last month project that revenue growth will slow in the coming year, due to falling oil prices and lower-than-expected corporate income tax collections due to impacts from a federal budget bill. 

Specifically, the state is projected to take in $13.4 billion in recurring revenue during the fiscal year that ends in June 2026. Budget plans released in recent weeks by the executive branch and the Legislative Finance Committee both call for hefty state reserves — of at least $3.3 billion — even as spending levels continue to increase.

Propst said legislators’ decision not to spend the state’s entire revenue bonanza in recent years and instead set much of the money aside for future use was key to securing the bond rating upgrade.

New Mexico’s permanent funds ballooned to a record-high $64 billion as of this summer, and lawmakers have also created new trust funds in recent years to help pay for behavioral health, early childhood programs and conservation efforts statewide.

“The state has been funding and expanding programs, services and infrastructure for several years now, while also saving and investing for the future,” Propst said Monday.

He also said that investment income from the state’s various permanent funds and trust funds is on track to surpass oil and gas-related tax collections as New Mexico’s primary revenue source by 2030.

For her part, Lujan Grisham described the credit rating upgrade as a significant development, pointing out the state’s credit rating on long-term bonds is now among the highest levels in the nation.

As of last year, there were 17 states with Aaa bond ratings from Moody’s, which is one level higher than New Mexico’s new Aa1 rating.

“This upgrade is the result of years of smart, disciplined budgeting and strategic investments that benefit every New Mexican,” the governor said in a statement.

Meanwhile, the bond rating upgrade comes as New Mexico lawmakers are preparing for the start of a new 30-day legislative session next week,

During Monday’s meeting of the House Appropriations and Finance Committee, Rep. Nathan Small, D-Las Cruces, described the change as a “team win” while other lawmakers asked state officials what it might take for the state to maintain its improved bond rating.

In addition to upgrading New Mexico’s overall credit rating, Moody’s also affixed higher ratings to several types of state bonds. The state typically issues bonds to finance road construction and other public works projects, though New Mexico has used cash to pay for most projects in recent years instead of taking on future debt.

Dan Boyd covers state government and politics for the Journal in Santa Fe. Follow him on X at @DanBoydNM or reach him via email at dboyd@abqjournal.com