A better outlook
Budget forecast much more optimistic than projections
SANTA FE — New Mexico appears poised to emerge from the coronavirus pandemic with an improving revenue outlook and deep cash reserves, something that looked highly unlikely during the summer of 2020.
While revenue levels took a big hit in the current budget year due to the pandemic and falling oil prices, they are expected to reach nearly $7.4 billion during the fiscal year that starts in July, according to new estimates released last month by legislative and executive branch economists.
That could give lawmakers the ability to target modest spending increases at public schools, broadband expansion, health care and business aid programs.
“Certainly, we’re not out of the woods yet, by any means,” Rep. Patricia Lundstrom, D-Gallup, chairwoman of a House budget-writing panel, said after the new revenue estimates were unveiled. “But we can see the light at the end of the tunnel.”
In addition, the top budget official in Gov. Michelle Lujan Grisham’s administration said the improved revenue outlook means state agencies will be allowed to submit flat budget requests for the coming year.
The governor’s administration had previously directed state agencies in September to prepare for spending reductions of 5%, with some exceptions.
“We feel confident there’s sufficient recurring money to maintain budgets at a flat level,” said Debbie Romero, acting secretary of the Department of Finance and Administration.
In all, revenue levels in the coming fiscal year are now expected to exceed the state’s current $7.2 billion budget — that was pared back by lawmakers during a special session last summer — by $169 million.
That forecast is much more optimistic than economists’ projections from this summer, prompting state Rep. Javier Martínez, D-Albuquerque, to tout the “very, very welcome news that our budget outlook is not as dire as previously thought.”
Even after cash reserves are used to help plug a budget shortfall this year, reserves are still projected to end up at $2.4 billion at the end of the current fiscal year — or 33.4% of state spending.
That’s due in no small part to a 2017 law that called for some state revenue in cash-flush years to be set aside in a rainy day fund.
However, the ongoing COVID-19 pandemic and business restrictions imposed to slow the spread of the virus have taken their toll on New Mexico’s economy.
Despite recent gross receipts tax growth, small businesses’ sales have dropped by about 40% as New Mexicans’ shopping habits have changed.
LFC economist Dawn Iglesias said more people are now shopping online, not inside businesses. While the state can collect sales tax on internet sales under a 2019 law, numerous small businesses have closed this year due to a drop in sales.
The impact is also being felt by workers, as employment levels in New Mexico are not expected to reach prepandemic levels until 2025, according to economists and top state officials.
Meanwhile, the budgetary pain inflicted by the pandemic would have been much worse if not for federal relief measures, according to legislative economists.
In all, New Mexico received more than $1.2 billion under the federal CARES Act, and lawmakers approved spending $320 million of that in November on expanded unemployment benefits, small-business grants and cash assistance for low-income state residents.
Some Republican lawmakers have seized on the state’s reliance on federal funding to criticize the governor and Democratic-controlled Legislature for overspending in past years.