Cash levels increase in fiscal year, says deputy treasurer

In April, pool of funds to operate state government increased by $370 million, contradicting Gov. Martinez

As lawmakers and Gov. Susana Martinez prepare for a special legislative session to balance the budget for the fiscal year starting July 1, the state is seeing an increase in some of its cash levels that should help them reach a deal quickly.

A new report by the Office of the State Treasurer contradicts claims by Martinez that New Mexico is burning through cash and needs to furlough employees next month to maintain a positive cash balance to close this fiscal year.

During a speech last month before an independent tax research group, Martinez discounted revenue tracking reports that showed a more stable balance sheet for the state. She said there was a difference between estimates and actual cash balances.

“We have a cash problem, which is different from a projected revenue problem,” Martinez said.

But with about seven weeks to go before the end of the 2017 fiscal year, there is no cash problem, according to Deputy State Treasurer Sam Collins.

Collins said Friday the pool of funds used to operate state government increased by $370 million in April. The majority of this increase resulted from the transfer from State Investment

Council of $110 million from the Tobacco Settlement Fund. Legislators in January authorized that transfer of money as a solvency measure.

That is one-time money that helps stabilize reserves, but can’t be relied on for new programs or spending increases.

But, Collins said, even recurring tax collections for April were stronger than the past two years. They were $97 million higher than 2016 and $139 million above 2015. That follows increased spending in New Mexico in February, reflected in higher than expected gross receipts tax revenue. Gross receipts taxes, paid on the purchase of many goods and services, contribute one-third of the money in the state general fund.

“Based on the projections we’ve seen, we’ve got adequate liquidity,” Collins said. “The bottom line is that April was a strong month.”

What the bounce means going into the May 24 special legislative session is not entirely clear.

The Legislature, controlled by Democrats, approved a 2018 budget of about $6.1 billion to pay for public education and day-to-day government services. Their budget would have spent about $150 million more than the state was expecting to collect in tax and fees in the forthcoming fiscal year.

To make up the difference, lawmakers approved another bill that offered a series of possible tax and fee increases. They ranged from a 10-cents-a-gallon increase in the gasoline tax to a boost in fees for heavy trucks. Other sections of the bill called for extending the gross receipts tax to all retail sales on the internet and to not-for-profit hospitals, which are now exempt from paying gross receipts taxes to the state.

Martinez vetoed all the revenue measures. To show her disapproval, the governor also eliminated all the state dollars to colleges and universities, as well the Legislature itself.

The governor’s special session proclamation calls for that money to be restored with a balanced budget. She also is asking lawmakers to consider broad reforms of gross receipts taxes.

But based on the new financial reports, one key senator said Friday that the gap between revenue and spending in 2018 is likely to be less than expected.

“Quite frankly that doesn’t surprise me,” said Sen. John Arthur Smith, D-Deming, who chairs the Senate Finance Committee. “If it’s sustained, that’s pretty good news.”

Smith said the trend now shows there might be a 2018 gap of $70 million or less from what lawmakers set in their original spending bill.

Smith, Sen. Steven Neville, R-Aztec, and Rep. Patricia Lundstrom, D-Gallup, have written a letter to the governor asking the administration to cooperate on a new revenue estimate that can be used to guide them in the special session. Smith said the governor has not responded formally to the letter, but has said publicly that a new revenue forecast is not necessary.

The forecast is the main budgeting tool used by both executive agencies and lawmakers to establish spending levels. It is derived from economic models and analysis. Lawmakers and the governor’s office agree to the final numbers. Though spending priorities between the two are different, the total amount allocated is the consensus revenue number, and that helps ensure a balanced budget, as required by the state constitution.

For 2018, the forecast calls for $5.93 billion. But that number does not factor in many recent changes, including an agreement from Amazon to pay state taxes for its direct sales. The Taxation and Revenue Department has estimated that alone would bring another $20 million annually.

Smith said even if Martinez balks at a new forecast the Senate Finance Committee will consider any new data.

Martinez’s spokesman, Michael Lonergan, did not respond to an inquiry about potential employee furloughs, which would be used to conserve cash before June 30.

But earlier this week, Joseph Cueto of the State Personnel Office said furloughs remain an option but seem unlikely. Cueto said savings have been achieved with a hiring freeze and the consolidation of some 400 positions in human resources.