Gov. signals possibility of short session to fix budget
State Investment Council says it lacks authority to move tobacco settlement funds without lawmakers’ direction
Gov. Susana Martinez on Tuesday made her first public comments about the need to bring lawmakers back to Santa Fe to close an expected $150 million shortfall for the just-ended fiscal year.
At a meeting of the New Mexico State Investment Council, Martinez said she has been monitoring the state’s fiscal situation for weeks and that if a special legislative session is needed to rebalance the 2016 budget, it should be short and to the point. “I’d really like to see this get resolved before we get to the Capitol,” she said, adding that she hopes “it’s a four-hour session. We walk in and walk out.”
Martinez was at the Republican National Convention in Cleveland last week when Democrats in the Senate, led by Sen. John Arthur Smith of Deming, called on her administration to move forward with plans for a special session to close a deficit on the books for the 2016 budget year that ended June 30.
Since the money already has been spent, Smith says, the only way to meet the constitutional requirement
for a balanced budget is to draw money from a fund established from a national settlement with tobacco companies. But that money is earmarked for anti-smoking, cancer research and public health programs, and some lawmakers have concerns about tapping it for other purposes.
As of this week, the tobacco settlement fund was valued at $224 million, with the money invested in long-term assets as equities, Robert “Vince” Smith, deputy state investment officer, told the State Investment Council.
Lawmakers already have tapped into other reserve funds and have swept unspent money from dozens of accounts in emergency measures to balance spending for fiscal years 2016 and 2017. Though the 2016 budget year is officially over, vendors have 30 days to submit invoices, and revenue will not be tallied until late August.
State finances have been hit hard by the recent decline in crude oil prices. Projections through May by the Legislative Finance Committee indicate the state’s $5.9 billion budget will be short by $150 million to $200 million for 2016, and fiscal year 2017 spending might also have to be trimmed.
Smith and Investment Officer Steven K. Moise said they were seeking direction from the State Investment Council on whether to move some or all of the fund to a cash position in case the governor, who chairs the council, and lawmakers decide it is needed to balance the budget.
The council, however, decided it didn’t have clear authority to make the investment change unless directed by lawmakers.
Department of Finance and Administration Cabinet Secretary Duffy Rodriguez added that the law governing the fund states it can be used to for fiscal emergencies, but only in the amount necessary to close a deficit.
“So it may not be the entire amount,” she told the council.
The trade-off of not moving the money now, when the stock market is at an all-time high, is that some could be lost if the state has to sell some $150 million in assets in a market downturn.
The tobacco fund was created in 2000 as a result of a 1998 master settlement between New Mexico, other states and cigarette manufacturers. Under the law, money can be spent to support public school programs, health and disease prevention, smoking cessation and public health. In 2003, the fund’s use was expanded “to avoid an unconstitutional deficit” in fiscal emergencies, according to the law.
Each year, the fund receives contributions based on the level of tobacco sales statewide. The revenue hit $45.6 million in 2009, but it has since stabilized at $39 million.
Gains from the core investment are what’s used to support the programs. If that endowment amount is cut, then the program spending will have to be halted or severely reduced. New Mexico already received a failing grade from the American Cancer Society in 2015 for allocating just $5.9 million on tobacco prevention — onequarter of the target set by the U.S. Centers for Disease Control and Prevention.
State Sen. Cisco McSorley, D-Albuquerque, an attorney and co-chairman of the committee that oversees spending from the tobacco settlement fund, is opposed to tapping it for general fund operations, unless the governor supports an offset that also would boost taxes on alcohol and tobacco products.
McSorley is among a core group of Democrats who have opposed the cuts in state spending and argue for a more balanced approach with tax increases other new revenue. Martinez and House Republicans have resisted that, saying new taxes would further hurt the state economy.
McSorley also said the state loses billions of dollars each year in productivity due to smoking and lung-related diseases, and that the tobacco settlement money is a small step toward prevention. He pointed out that some of the money goes to The University of New Mexico Cancer Center and anti-smoking efforts aimed at children on the pueblos.
“If we’re going to be toadies to the governor, and she determines no new taxes even on tobacco and alcohol, then we might as well resign and let her continue to run the state into the ground,” he said. “That is what she is doing, and that’s what this will accelerate.”
Rep. John Zimmerman, R-Las Cruces, the other co-chairman of the tobacco settlement oversight committee, said he, too, has questions about whether the money can be used for general fund operations.
“Any pot of money that’s out there is subject to be taken and used for any shortfall,” Zimmerman said. “I’m not sure at this point if there is some legal ramifications how we could use that money. All of those are questions we’d have to consider before we tapped into that fund.”
Fixing the 2016 budget is just one issue facing lawmakers. With lower reserve funds and no way to make up for additional revenue declines, lawmakers will have to cut more spending for the 2017 fiscal year — and then start to craft a budget in January for 2018.
With one-third of general fund revenues coming from the oil and gas sectors, that challenge looks pretty daunting.
“We have used up every penny the state has on hand. New Mexico is structurally bankrupt right now,” McSorley said.