State revenue growth cools amid falling oil prices, but $105M in ‘new’ money still projected

SANTA FE — For the first time after five years of record-breaking revenue growth, New Mexico is projected to take in less money during the current budget year than it did in the past year.

Specifically, the state is projected to collect $13.4 billion in recurring revenue during the fiscal year that ends in June 2026, according to new estimates released Monday.

That’s $212.6 million less than was collected in the just-finished budget year — and roughly $322 million less than had been previously projected in August.

The revenue dip, caused largely by falling oil prices and lower-than-expected corporate income tax collections connected to a federal budget bill, could prompt legislators to take a more tight-fisted approach to budget requests during the 30-day session that starts next month.

“This is not a doom forecast, but it is a very sobering forecast,” said Rep. Nathan Small, D-Las Cruces, the chairman of the Legislative Finance Committee, during a Monday hearing at the state Capitol.

Despite the revenue cooldown, lawmakers are still projected to have $105.7 million in “new” money available during the coming budget year. New money represents the difference between anticipated revenue amounts and current spending levels.

In addition, revenue amounts would be even higher if factoring in a one-time general fund spike of $511.9 million from the State Land Office, which was generated by larger — and more lucrative — oil and gas rent and lease sales than expected.

During Monday’s hearing at the Roundhouse, the top budget official in Gov. Michelle Lujan Grisham’s administration read news headlines from several other states facing budget shortfalls.

Compared to those states, New Mexico remains in a “pretty good position,” said Finance and Administration Secretary Wayne Propst.

“Even in a worst-case low oil price scenario, we are still in a position where we’re not needing to look at recurring appropriation expenditure reductions,” Propst said.

For her part, the governor said her administration has worked diligently to ensure New Mexico is in a sound fiscal position.

“This momentum comes despite the constant failures at the federal level that are hurting our state,” Lujan Grisham said in a statement. “But New Mexico refuses to abandon its people, something that can’t be said of the Trump administration.”

An end to explosive revenue growth?

LFC Director Charles Sallee said last week that state spending has increased by about 80% since 2019, fueled primarily by an unprecedented oil production boom in southeast New Mexico.

While much of that spending has gone toward funding new initiatives like tuition-free college and increasing teacher and state worker pay levels, lawmakers have also set aside hefty amounts of money in trust funds for future use. New Mexico now has the nation’s second-largest sovereign wealth fund — behind only Alaska — with more than $64 billion in various funds.

With oil production in the Permian Basin projected to peak as soon as this year, Sallee said it’s imperative those spending infusions show positive economic and social results for the state.

“We’ve got to make those investments count,” Sallee said during a webinar hosted by the Greater Albuquerque Chamber of Commerce.

Several legislators voiced similar thoughts during Monday’s hearing, with Rep. Derrick Lente, D-Sandia Pueblo, saying it’s unlikely lawmakers will approve a package of tax cuts or other tax code changes during the 30-day session due to the state’s revenue situation.

“While we’ve done a great job, maybe this is not the year to have a tax package discussion,” Lente said.

However, state revenue collections are projected to continue increasing in future years. Specifically, revenue levels are projected to eclipse $14.4 billion by the 2028 budget year.

The revenue estimates are compiled twice-yearly by legislative and executive branch economists. The numbers will be used as a blueprint for lawmakers in crafting a new spending plan for the coming budget year.

Federal budget impacts

New Mexico is already feeling some of the funding impacts of the federal budget bill signed by President Donald Trump in July.

That includes the projected decrease in corporate income tax collections, which state Taxation and Revenue Secretary Stephanie Schardin Clarke attributed to federal tax deductions and other tax code changes.

“Federal tax changes, federal layoffs and global tariffs have weakened the national and global economy, impacting New Mexico revenue in many ways,” Schardin Clarke said. “Despite that, New Mexico remains in an incredibly strong position to weather this storm.”

But Senate Minority Leader William Sharer, R-Farmington, said the federal tax changes could also be benefitting the state’s oil industry, and thereby minimizing potential revenue losses to the state.

In addition, Rep. Rebecca Dow, R-Truth or Consequences, said the state could be missing out on some federal grants by not complying with Trump administration mandates.

“There are regulatory barriers in the way of us having a thriving economy,” Dow said during Monday’s hearing. “There are philosophical and political barriers, too.”

Top state health officials have said the federal budget bill could, once fully implemented, lead to hospital closures and job losses in New Mexico, due primarily to changes to Medicaid and a food assistance program utilized by more than 20% of state residents.

Lujan Grisham called two special legislative sessions this fall to deal with state-level impacts of the federal budget bill.