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State Faces Big Budget Squeeze

By Dan Boyd
Journal Capitol Bureau
       SANTA FE — State officials have mapped out a way to deal with a projected $454 million shortfall and balance the budget for this fiscal year without layoffs or broad funding cuts for education and other core programs.
    The upcoming budget year that begins July 1 could be a different story.
    Gov. Bill Richardson had hoped to solve the budget crunch — made worse by falling oil and natural gas prices — without raising taxes or cutting services.
    In announcing new revenue estimates on Monday, administration officials conceded that might not be possible in the long run.
    "I think we are going to have to go in and make some cuts and it will affect services," Finance and Administration Secretary Katherine Miller told members of the Legislative Finance Committee.
    The gap between expenditures and state revenue has grown steadily over the last three months as New Mexico increasingly finds itself being pulled into the national recession. For just the third time in 20 years, the state now faces the prospect of a revenue decline during the current budget year.
    Miller and other members of the Richardson administration said Monday that they believe the combination of recouping unspent infrastructure appropriations, imposing minor budget cuts and a hiring freeze on state agencies, and taking a pinch of help from the state's cash reserves can balance the budget for the current fiscal year that ends June 30.
    The next fiscal year could require more drastic measures, including the possibility of reduced funding for public schools and higher education, which make up nearly 60 percent of the state's $6 billion budget.
    Sen. John Arthur Smith, D-Deming and the LFC's chairman, said he was glad to see the Richardson administration place education in the mix after Richardson had initially insisted that schools wouldn't see any cuts.
    "I was just pleased that a reality check has finally reeled them in," said Smith, who said next year's budget could end up totaling about $5.7 billion. "We just don't know where the bottom of this is."
    Medicaid benefits could also be affected if the shortfall persists, and the number of state-sponsored infrastructure projects could dwindle.
    But Miller said a mass layoff of state employees isn't in the works.
    Just five months ago, New Mexico economists predicted a revenue surplus for the state and a $6.4 billion budget in the upcoming fiscal year. In August, lawmakers approved a tax rebate that gave up to $50 to eligible state residents.
    But state economic indicators now reflect the economic downturn, which has also caused the state's permanent and pension funds to lose billions of dollars in investments in recent months.
    Among the indicators:
    n Unemployment has in-creased from 3.3 percent in October 2007 to 4.4 percent in October 2008.
    n Job growth has been almost negligible overall and the construction and tourism sectors have both lost more than 1,000 jobs in the last year.
    n Home prices have declined in Albuquerque, Santa Fe, Las Cruces and Farmington, though the decline hasn't been as severe as in other Southwestern cities.
    New Mexico isn't the only state caught in an economic bind. At least 41 states face budget shortfalls, according to the Center on Budget and Policy Priorities. Some, such as California, are on the brink of a fiscal disaster.
    A possible silver lining could be a proposed $550 billion to $700 billion federal stimulus package that would likely go toward improvements in roads, schools, hospitals and alternative energy projects.
    "We are keeping watch on what the federal government is going to do," Miller said. "That could make a drastic difference."
    It's not clear how much money New Mexico might receive if Congress approves a stimulus plan.
    "It is not a long-term solution by any means," Smith said.
    Lawmakers will convene for a 60-day legislative session on Jan. 20. Making sure this year's budget is balanced and approving a budget for the next fiscal year will be among their tasks.