OPINION: New Mexico's bond rating upgrade was earned, not given

New Mexico’s recent bond rating upgrade to Aa1 from Aa2 reflects years of intentional decisions by the Legislature and the governor to reduce volatility, strengthen long-term savings and create a more stable future for all New Mexicans.

When a bond rating agency upgrades a credit rating, it is not reacting to a single strong year or a temporary surge in revenue but rather recognizing a sustained record of fiscal discipline and structural reform. For much of our history, New Mexico’s finances have been tied too closely to oil and gas prices. When energy markets were strong, revenues climbed quickly; when prices fell, budgets tightened and uncertainty followed. That boom-and-bust cycle made long-term planning difficult and exposed the state to unnecessary risk.

Over the past several years, the Legislature has worked, deliberately and with bipartisan cooperation, to change that reality. A major step came during the 2023 legislative session, when Senate Bill 26 was enacted to cap volatility in severance tax revenues and direct surplus collections into the Severance Tax Permanent Fund. That reform did something fundamental: It converted short-term windfalls into permanent assets. Instead of spending excess revenues during good years, New Mexico began investing them to support future budgets.

The scale of those investments is significant. In fiscal year 2025 alone, nearly $588 million in excess revenues were invested. In FY26, that figure increased to more than $1.2 billion, and in FY27 it is expected to reach approximately $1.7 billion. These investments are already strengthening the state’s balance sheet and creating a growing source of stable, recurring income.

Just as important is what these changes mean for New Mexico’s long-term revenue structure. Today, direct oil and gas severance taxes still account for roughly 23% of total state revenues, while permanent fund distributions make up about 13%. By mid-century, those proportions will be fundamentally reversed. Current projections show permanent fund distributions accounting for roughly 32% of revenues by FY50, while oil and gas revenues decline to about 7%. Sales and income taxes will comprise the remainder.

That transition matters. Not only to bond rating agencies, but to New Mexicans. A revenue system anchored by permanent fund earnings is more predictable, more resilient and better suited to supporting public services through economic cycles. It allows lawmakers to plan responsibly and reduces the likelihood of abrupt cuts when markets turn.

The Legislature has also ensured that these long-term gains translate into real benefits across the state. Trust funds have been established for higher education, behavioral health, Medicaid, conservation and pilot projects in communities throughout New Mexico. These funds provide sustained support for critical priorities while protecting the state’s fiscal health.

At the same time, lawmakers have modernized how New Mexico approaches capital investment. By creating mechanisms that reduce the state’s exclusive reliance on bonding for capital outlay, we are preserving debt capacity and improving flexibility in how infrastructure needs are addressed. This shift strengthens the state’s overall financial profile and is another factor closely watched by credit analysts.

The bond rating upgrade affirms that these reforms are working. It reflects confidence not only in New Mexico’s current finances, but in the systems we have built to manage them over time. This progress did not happen by chance. It is the result of sustained legislative effort, fiscal restraint and a shared commitment to long-term stability.

New Mexico still faces challenges, but we now confront them from a position of strength. The bond rating increase is a milestone worth acknowledging as confirmation that disciplined, forward-looking policy delivers real results for our state and its future.

Sen. George Muñoz, D-Gallup, represents District 4 in the New Mexico Senate. Wayne Propst is the cabinet secretary of the New Mexico Department of Finance and Adminsitration.