Increase in May revenue windfall for N.M.

Spring travel, construction contributes to third-best economy expansion in U.S. in first quarter of year

Spring travel and construction have enhanced New Mexico’s economy, bringing soaring tax revenues after the state cut spending to balance its budget.

A revenue tracking report released Wednesday by the Legislative Finance Committee showed that recurring tax revenue for the state in May was up $141 million, a jump of 32 percent from a year ago. Some downward adjustments are expected when projections are replaced by hard data, the report said.

The windfall defied predictions. Economists had forecast a drop in revenue, and Gov. Susana Martinez said in April the state was running out of cash. She instituted a hiring freeze for many state agencies and considered furloughs to conserve money until the 2018 fiscal year started July 1.

Instead, the operating budget for 11 of 12 months of the 2017 fiscal year finished ahead $121 million, or 2.4 percent, from the previous year. The state has a $6 billion operating budget, and about one-third of that total comes from

gross receipts taxes that are tied to purchases of goods and services.

“This growth significantly exceeds the consensus revenue forecast for the full fiscal year,” wrote Jon Clark, the economist who prepared the analysis for the finance committee.

State Sen. John Arthur Smith, a Democrat from Deming who chairs the Senate Finance Committee, said the report is encouraging and means lawmakers won’t have to return to Santa Fe to make more spending cuts or budget adjustments before the next regular legislative session, which begins in January.

After oil prices tumbled, state government depleted cash reserves that had totaled $700 million. Moody’s Investors Services trimmed New Mexico’s bond rating to a notch below its highest level. But, Smith said, the upbeat fiscal report Wednesday probably means the agency will postpone any further credit actions in the state.

He cautioned there are still data problems with some of the reports from the state Taxation and Revenue Department, and economists need to sort that out in the coming month.

Still, Smith said, “It’s all encouraging.”

Lawmakers will get a more complete update on state finances Aug. 16 at a meeting in Taos. A new revenue forecast for the coming year also will be outlined.

State lawmakers met for a three-day special session in May after Republican Martinez vetoed all state funding for colleges and universities, a move that Democratic lawmakers said was unnecessary and disruptive. When lawmakers and the governor finally agreed on a spending plan, the expected reserves at the end of June were projected at $90 million. Today they are tracking closer to $145 million.

Still, that level is about 2.6 percent of the operating budget when Martinez promised to restore reserves to 5 percent.

Economists have identified two trends that are boosting economic growth in New Mexico. The first is tourism and hospitality, where employment has expanded 7.7 percent during the past year.

But Clark warned that the increase — which is based on household survey information from the U.S. Bureau of Labor Statistics — might be too good to be true. He expects the numbers to be adjusted downward when actual payroll data is available at the end of the year.

“LFC economists believe the unprecedented growth level warrants a cautious view,” he wrote in the report.

The other positive trend is construction employment and spending, in part fueled by health care projects and the giant Facebook data center in Los Lunas, a development with up to 900 contractors on-site every day.

After declines in 2015 and 2016, construction added 3,500 jobs over the past 12 months, expanding by about 8 percent statewide. That’s one of the best growth rates in the country during the past 12 months.

Data released Wednesday by the U.S. Department of Commerce showed that New Mexico’s economy expanded 2.8 percent in the first quarter of 2017, the third-best showing in the United States behind Texas at 3.9 percent and West Virginia at 3 percent.

Economic data for New Mexico, West Virginia and other small states can be volatile. But it might be an indication that states where the postrecession recovery has been lagging are now catching up. The report shows that the mining sector, which includes oil and gas, is no longer a drag on the state and is now contributing to its growth as production remains at a record level, despite lower prices.

Lawmakers will get a more complete update on state finances Aug. 16 at a meeting in Taos.