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February 11, 2003

Revenue Estimate Points to Budget Squeeze if Tax Cut Doesn't Work

By Barry Massey
The Associated Press
    ANALYSIS   —    —   SANTA FE   —   Tucked away in a new revenue forecast is evidence suggesting a potential budget squeeze in the future if Gov. Bill Richardson's tax-cut package is enacted and it fails to jump start the economy.
    Based on five-year estimates of revenues flowing into the state's general budget account, the state should collect just under $4.3 billion in 2007. However, that doesn't reflect the revenue loss from the governor's proposed tax cuts: $325 million in 2007.
    After accounting for the tax cut, the state's projected revenues in 2007 would fall $80 million short of the $4.05 billion that the governor has proposed to spend in his budget recommendations for the 2004 fiscal year.
    Think about that.
    Projected revenue growth by 2007 wouldn't cover next year's spending on general government and public education if taxes are cut as requested by Richardson. Factor in possible budget increases in 2005, 2006 and 2007   —   for schools or Medicaid, for example   —   and the revenue-expenditure mismatch could be hundreds of millions of dollars.
    Of course, that analysis doesn't factor in any boost to the economy and jobs from Richardson's tax cut. The governor is banking on that happening and generating extra revenue. He contends that lowering taxes will help New Mexico recruit businesses with high-wage jobs.
    "The reason we have this tax cut is to be competitive with our surrounding states. It's not any trickle-down theory. It's to grow our economy," Richardson said at a recent news conference.
    The latest revenue forecast was developed by economists in the Richardson administration and the Legislature. It showed better than anticipated revenues for this year and next year. However, administration officials acknowledged there are "significant risks" in the projections for revenues related to oil and natural gas because prices used in the forecast are higher than the historical average.
    The long-term revenue outlook helps explain why a few members of the Legislature are starting to openly question the governor's proposal to lower personal income taxes over four years.
    It also underscores why the House insists on adding a circuit-breaker to the tax cut legislation to postpone some of the proposed tax reductions if state finances deteriorate.
    Rep. Max Coll, D-Santa Fe, chairman of the House committee that handles the budget, was one of the few Democrats who voiced doubts about the fiscal wisdom of a four-year tax cut when the House debated the governor's proposal last week.
    Coll said he preferred approving tax cuts one year at a time rather than locking in multiyear reductions that could force the Legislature to slash budgets or raise taxes in the future if the economy slumps and revenue collections plunge unexpectedly.
    The new five-year revenue projections have added to Coll's concern. He points out that the Richardson administration didn't present to lawmakers a five-year projection of state spending along with the projection of revenues through 2007.
    "It was just cowardice that kept them from bringing it out, showing it to us," said Coll, acknowledging that the $325 million cost of the tax cut could squeeze the state's budget in the future.
    "They're playing two long shots trying to do a two horse parlay," Coll says of the Richardson administration. "One is that the price of oil and gas will stay high. The second one is that this tax cut will bring a stampede of new taxpayers into the state. I think both of those are very long shots."

    EDITOR'S NOTE: Barry Massey has covered state government and politics for The Associated Press since 1993.