Swimming in red ink
NM needs to ride a wave of fiscal reality into the special legislative session that starts June 18
The double whammy of rock-bottom oil prices and the economic devastation triggered by the coronavirus lockdown has New Mexico staring at a potential budget shortfall that could be as high as $2.2 billion for the fiscal year that begins July 1.
So it’s either comforting — or a perplexing case of rose colored glasses — that Gov. Michelle Lujan Grisham said last week that “We’re in pretty good position where I don’t anticipate we’ll have to make deep cuts” to next year’s budget.
The governor made the comment in announcing that lawmakers will convene for a special session in Santa Fe on June 18 to grapple with the budget. She said the state’s hefty reserves and federal stimulus funds could help the state avoid layoffs and furloughs of state workers and teachers.
Indeed, the $1.7 billion in reserves, wisely put aside primarily from oil and gas money, has been a buffer from cuts for the current fiscal year. But it won’t cover red ink next year. Or the year after that.
Lujan Grisham didn’t say whether she would support trimming back or freezing hefty raises for teachers and other state workers, or projects she’s passionate about like tuitionfree college, $320 million for a new early childhood trust fund, the film industry subsidies and another $55 million to once again shore up public employee pension funds. (The Journal Editorial Board supported some of these as innovative ideas that would move our state forward.)
All are among items approved just a few months ago when the Legislature was on a spending binge fueled by the then-boom in oil and gas and a robust economy.
Over objections by some moderate Democrats and Republicans — Rep. Jason Harper, R-Rio Rancho, for example said he was “terrified about the spending being proposed” — the Legislature approved a $7.6 billion budget that reflected an overall spending increase of 7.6%.
Then, starting in March, the coronavirus pandemic and the lockdown to control it took a terrific toll.
First, it triggered a global recession that, combined with Russia and Saudi Arabia’s price-and-supply war, sent oil prices plunging. New Mexico’s FY21 budget had been crafted on oil prices of $50 a barrel. At one point recently, it was trading at zero. Now, that price doesn’t matter so much in the short term because many operators in New Mexico have shut down their wells or are in the process of doing so. “You have huge lots where all the equipment from the oil fields has been parked,” one Hobbs resident says. The industry as we know it isn’t bouncing back anytime soon.
Under current projections, revenue for next year could be as low as $5.5 billion (it had been projected to hit $7.9 billion). And given the economic havoc wreaked by the lockdown, don’t be surprised if the next official forecast is even lower.
Meanwhile, more than 140,000 New Mexicans have filed for unemployment. Thousands of businesses are shuttered, and tax revenue has dried up. A closed restaurant or bar doesn’t collect gross receipts taxes. Nationally, the number of people who didn’t pay rent on May 1 soared, and April set an all-time record for mortgage delinquency. There is no reason to think we’re not in that same boat.
Why is this pertinent to a special session?
Lawmakers and the governor don’t need to address just the current budget crisis — as Rep. Patricia Lundstrom, D-Gallup, and chairwoman of the House Appropriations and Finance Committee, says, “It hasn’t been — in any way — a pretty picture.” They also need to lay the groundwork now for the long term. “The economists I speak to believe we’re in for a pretty long haul on this,” says Sen. John Arthur Smith, D-Deming, and chairman of the Senate Finance Committee.
Indeed, the University of New Mexico’s Bureau of Business and Economic Research forecasts employment levels in the state might not recover to prerecession totals until 2025.
The governor mentions federal stimulus funds, which might help. But the money appropriated so far must be spent on coronavirus-related costs, including expanded unemployment benefits. It’s not a budget bailout.
Yes, Congress might appropriate money for state and local government — Santa Fe alone is projecting a $100 million deficit next year — but no government can print enough money to bail out everyone at every level. In the long run, it’s economic activity that creates wealth and funds government — not the other way around.
The governor should keep that in mind even as her health secretary delivers warnings via State Police to county officials about businesses trying to reopen in a place like Lea County with 71,000 people and a total of 18 COVID cases and zero deaths out of more than 2,000 tests.
When lawmakers reconvene there will be increasing pressure to dig deep into the corpus of the state permanent fund to pay for recurring expenses. That’s a terrible idea. If the current crisis has shown anything, it’s that the permanent fund is the most stable revenue generator we have.
No one wants teachers or state workers to join the already swollen ranks of unemployed New Mexicans. Every effort should be made not to slash those jobs. But can we possibly justify the raises in this budget?
What’s needed when the Legislature reconvenes is a double dose of reality and responsibility to create a balanced budget going forward without raising taxes or breaking the piggy bank.
It’s a heavy lift with certain pain. But it’s the best plan for New Mexico in the long run.