Legislature should make budget solvency job No. 1

When you are staring down the barrel of a $369 million budget deficit, it makes sense to sound the alarm early and often — and come up with a solvency plan ASAP.

That’s been the modus operandi of Sen. John Arthur Smith, Deming Democrat, chairman of the Legislative Finance Committee, and state budget pragmatist since 1989. Smith said this month that “we’ve got to save money fast. If we can’t get a consensus and find some corners that still have money in them, we’re going to have to take drastic action.” Drastic as in furloughs for teachers and canceled school days. A spokesman for Gov. Susana Martinez is calling Smith’s warning “absurd” and “counterproductive.” At least two lawmakers appear oblivious to the crisis and are instead renewing the call to expand government’s already expanded early childhood programs (and thus recurring expenses) with another raid on the permanent fund that helps run public schools and hospitals.

But here’s the thing: unfortunately, it appears Smith is right. The lowest-hanging savings fruit has already been plucked — remember just this past October lawmakers met in special session to scrape up $371 million via one-time fixes and spending cuts. That left an estimated $69 million deficit for the current fiscal year, even with all cash reserves used, and a $300 million shortfall for the budget year that kicks in July 1.

K-12 public education and higher education alone take up 57 percent of the budget. It’s unlikely lawmakers can keep that, Medicaid (15 percent) and public safety (7 percent) safe from cuts and still balance the budget as required by the Constitution.

The state is in this fiscal nightmare because state revenues are down, in part because the government-dependent economy has never bounced back from the recession and sequestration and because oil and gas prices have plummeted. And that latter isn’t just royalty money the state is out — previously high-performing sectors of the economy have been slammed by the fall.

With less money coming in, the governor has stuck to her vow of no new taxes — and she’s right in the respect that the state certainly does not want to do anything to discourage employers from opening up shop/expanding, prospective employees from seeking a job and current employees from advancing. But there are judicious tax increases that could be debated. Raising the tax on liquor (last increased in 1993); on tobacco (the tax on cigarettes was increased in 2010 but, for other tobacco products, it has not changed in three decades); on food (the state repealed the tax on food in 2004, pushing local governments that relied on the income to increase taxes on other goods); and on gasoline (last increased in 1993) should be on the list.

Meanwhile, those declining oil and gas revenues are the same stream that feeds the Land Grant Permanent Fund. New Mexico already takes 5 percent of the fund’s value annually — a distribution rate that until recently had been an imprudent 5.5 percent. The State Investment Council has said as much, pointing out Wyoming’s permanent fund distribution, as well as the Yale and Texas A&M endowments, are at 5 percent; Columbia is at 4.5 percent.

Yet Albuquerque House Democrats Antonio Maestas and Javier Martinez have prefiled an amendment to increase the annual distributions to 6 percent by 2022 for things like home visits by counselors to ward off neglect for children age 0 to 5 years. The proposal ignores the facts that not only does that place the corpus of the fund — which accounts for around 15 percent of the state’s operating budget — at risk as revenues dwindle, but New Mexico has recently ramped up spending in this area and allocates around $200 million annually to early childhood programs. Smith, who sponsored the legislation that appropriated nearly $10 million from the tobacco settlement fund for in-home visiting and preschool programs, has said “throwing money at it is not exactly the right thing to do with any program.”

New Mexico is $369 million short, and anyone who has had too much month at the end of the money knows responsible adults do not look around for more things to buy; they quickly figure out what they can afford, what they can economize on, what they can cut and how they might increase their take-home pay — before the late fees and shut-off penalties make a big debt a crushing one. That appears to be Smith’s goal, and legislative leaders have already taken his lead. The two budget-writing committees — Senate Finance and House Appropriations and Finance — have been authorized to meet the week before the session starts on Jan. 17, with any luck paving the way for a quick vote on an emergency solvency package for the current budget year when the full Legislature convenes. That would leave the balance of the 60-day session to come to grips with the $300 million shortfall.

New Mexico is facing a multibillion-dollar budget crisis, and it’s Dec. 23. It’s too late to sound the alarm early, but Smith and legislative leaders are right to meet early and often to devise a budget plan before the 2017 session starts.