New Mexico revenue expected to plunge
Economists project shortfall of up to $2.4B for fiscal year that starts in July
SANTA FE — There are headaches and heartburn on tap at the Roundhouse, as a new report issued Wednesday indicated New Mexico’s revenue outlook will be bleak for the foreseeable future.
Specifically, a double whammy of collapsing oil prices and a broader economic downturn triggered by the coronavirus means New Mexico will likely collect between $1.8 billion to $2.4 billion less than previously projected for the fiscal year that starts in July.
“It hasn’t been — in any way — a pretty picture,” Rep. Patricia Lundstrom, a Gallup Democrat and chairwoman of the House Appropriations and Finance Committee, told the Journal.
The revenue drop would represent a decline of up to 30% compared with the revenue projection issued when the state approved its $7.6 billion budget earlier this year.
In other words, instead of $7.9 billion in total state revenue collections for the budget year that starts in July — as was projected in December — it’s now expected the state will take in $5.5 billion to $6.1 billion. The lower end of those estimates would mark the state’s lowest revenue levels since 2010.
And the financial squeeze isn’t expected to be temporary.
The revenue range for the following fiscal year shows downward revisions on a similar scale, suggesting New Mexico policymakers shouldn’t count on an immediate recovery.
“The economists I speak to believe we’re in for a pretty long haul on this,” said Sen. John Arthur Smith, a Deming Democrat and chairman of the Senate Finance Committee.
The new revenue report — issued by legislative and executive branch economists — outlines the daunting scope of the state’s budget problem as Gov. Michelle Lujan Grisham and legislators prepare for a special session in mid-June.
Lujan Grisham, a Democrat in her first term, said she would support tapping more heavily into New Mexico’s largest permanent fund to help survive the financial storm.
But the idea is sure to run into opposition from Republicans and perhaps some Democrats. Voter approval would also be required.
Sen. Jim White, an Albuquerque Republican and member of the Senate Finance Committee, said he will object to any push to take more money from the Land Grant Permanent Fund. The 5% distribution level now in place, he said, is a prudent amount that provides hundreds of millions of dollars a year to support schools and other beneficiaries.
“You’ve got to be careful how much you take out of it,” White said.
There are expenses — such as tax incentives for film production — that could be examined first, he said.
Top-ranking lawmakers have said other budget-balancing measures could include spending cuts, drawing down state cash reserve levels and the clawing back of proposed onetime spending — including $320 million for a new early childhood trust fund, $180 million for statewide road repairs and $55 million to shore up a state retirement system.
Approved pay raises for teachers, judges and other state workers that are scheduled to take effect July 1 could also be reduced — or put on hold.
“Everything is on the chopping board now, I’m afraid,” Sen. Gerald Ortiz y Pino, D-Albuquerque, told the Journal this week.
The governor’s top budget official, Finance and Administration Secretary Olivia Padilla-Jackson, said Wednesday that the Lujan Grisham administration is taking a “balanced approach” to revising the budget.
That approach will likely include using some of the state’s reserves and reducing both recurring and one-time spending levels, PadillaJackson said.
“While there is no doubt that these revenue losses are significant, the state is well positioned — with over 25% reserves in its coffers,” she said.
Padilla-Jackson also said state officials hope the Trump administration and Congress will give states more flexibility to use federal relief funds to address their budget crunches.
New Mexico has received more than $1 billion from a stimulus package passed by Congress in March. But most of that money cannot be directly used to backfill state programs. Instead, it’s intended to reimburse the government for coronavirus-related costs, including expanded unemployment benefits.
Potential solutions aside, the new revenue report warns that difficult times are ahead.
Employment levels in New Mexico may not recover to pre-recession totals until 2025, according to a forecast from the University of New Mexico’s Bureau of Business and Economic Research.
And the state budget could be squeezed from all sides — declining oil prices and energy production, business closures and layoffs, and reduced economic activity in general, the report says.
The report released Wednesday isn’t a formal revenue forecast. Updated revenue projections are expected before lawmakers meet in June.
But the report offers policymakers their first look at the potential damage wrought by the pandemic, stay-at-home instructions and global economic turmoil.
Staff economists outlined two scenarios for state revenue: One is a “U-shaped” recovery in which revenue begins a modest recovery in the coming budget year, while the other is an “L-shaped” recovery with a longer, deeper economic contraction.
“The variance in the potential outcomes,” the report says, “depends on a variety of factors: the epidemiological path of the virus, the strategies for reopening the New Mexico and U.S. economies, the time it takes consumer confidence to rebound, the effect of business closures on the long-term viability of New Mexico’s businesses, the degree to which temporary layoffs become permanent, and the impact of global oil supply and demand on oil prices and the associated effect on the state’s oil production.”
The state has substantial reserves, expected to total $1.9 billion at the end of the current budget year in June, after Lujan Grisham line-item vetoed about $150 million worth of infrastructure projects from two spending bills in March.
That means there should be enough money in reserves to avoid emergency budget-balancing measures for the current budget year, leading legislators say.
But staff economists, in Wednesday’s report, warned that state reserves “are likely insufficient to cover the extent of the projected revenue declines for” next year.
It’s a stunning turnaround after budget surpluses — driven largely by an oil boom in the Permian Basin — allowed New Mexico to sharply increase spending in recent years.
Smith, the Senate Finance Committee chairman, said legislators may make two rounds of budget adjustments — a set of initial changes in June, then others in January, after more economic information is available.
“Obviously, it’s a moving target,” Smith said.