New Mexico’s budget just about flat, report says
N.M. may have closed fiscal year with slightly more money than anticipated
TAOS SKI VALLEY — After two years of deficits and spending cuts, New Mexico lawmakers expect to face a flat budget with almost no additional money when they return to Santa Fe in January.
The new general fund revenue estimate released Wednesday to the Legislative Finance Committee shows the state should have an additional $25 million for fiscal year 2019, which begins in July. That’s an increase of about 0.4 percent over current spending and leaves lawmakers little room to maneuver in drafting a budget. On the positive side, they may be able to avoid further cuts in programs and services.
The report shows the state has collected more money in gross receipts taxes and from oil production than economists expected. With oil and gas production now at a record level, New Mexico is projecting to close out the 2017 fiscal year, which ended June 30, with more money in reserves than anticipated, about $330 million or 5.4 percent of the $6 billion general fund.
Without new spending or revenues, the forecast calls for general fund reserves to fall to $206 million at the end of the 2018 fiscal year.
But the report cautioned that the state’s financial forecast is based on some big assumptions, and members of the budget committee even questioned how Gov. Susana Martinez’s administration is accounting for tens of millions of dollars in tax revenue.
“I’m still concerned about the reliability and the discrepancies we’re see-
ing,” Senate Finance Committee Chairman John Arthur Smith, D-Deming, said of the forecast. “But I feel better than I did two years ago.”
The 5.4 percent in cash reserves is around the target level set by lawmakers and Martinez after the state used most of its savings account to balance budgets in 2016 and 2017. Reserves totaled more than 11 percent just a few years ago. Then lawmakers had to dip into savings as revenues declined, leading Moody’s Investors Services to downgrade the state’s credit rating last summer.
Duffy Rodriguez, Cabinet secretary for the Department of Finance and Administration, said the estimate does not take into account June tax receipts, which are just now flowing in. Those have been strong, she said, and once tallied, will probably boost 2017 reserves above 6 percent.
Known as the consensus revenue estimate, the report is drafted by budget officials from the Legislature and the Martinez administration. It provides a baseline for discussions about the budget for the year to come, and it signals whether midyear adjustments might be needed for the current spending plan.
The report credited the positive financial outlook to strongerthan-expected revenue from gross receipts taxes, a resurgent oil and gas industry and data suggesting a growing number of New Mexicans are working. New Mexico has had one of the country’s highest unemployment rates this year.
Republican Martinez’s administration seemed to tout the report as a repudiation of Democratic lawmakers, many of whom called for tax and fee increases when the state’s revenues faltered.
“In the end, the governor fought to enact a balanced budget without raising taxes,” spokesman Joseph Cueto said in an email. “Now look where we’re at: Our GDP [gross domestic product] was the third-fastest growing in the country through the first quarter, and we just saw our strongest private-sector job growth in more than a decade, at nearly 19,000 private-sector jobs in the last year alone. And now the state is predicting a budget surplus, rather than a deficit.”
But the report also said a long list of factors could change the state’s fortunes.
Actual revenues likely will deviate to a greater degree than in the past, the report said. The report questioned the reliability of employment data, referring to the listed boost in hiring as “a questionable data point.”
Though employment has risen, according to some surveys, economists say the sectors of New Mexico’s economy that are hiring, such as hospitality and health care, often pay lower wages than sectors that have shrunk, such as government and mining.
“New Mexicans are still seeing very low average weekly wages,” said Jon Clark, chief economist for the Legislative Finance Committee.
And for the long term, the state is still setting aside too little money, the report said.
Smith said several factors could upset the budget for the next fiscal year, such as changes in the health care industry, the potential change in tax status of Los Alamos National Laboratory and a pending court ruling over public education funding.
The uncertainties are cause for concern because the state has few places to look for money. Legislators bolstered reserves earlier this year by selling bonds — meaning they borrowed money to pay for the day-to-day operations of New Mexico government. And lawmakers have already taken cash balances from various accounts in the state bureaucracy.
Sen. George Muñoz, D-Gallup, also questioned how the Martinez administration is calculating tax revenue, citing an anomalous uptick in a particular type of cash flow.
While suggesting the data was something of a mystery, the acting secretary of the Taxation and Revenue Department, John Monforte, said he believed his staff had found an explanation that centers on just a handful of apparently big taxpayers.
Muñoz later said the administration’s numbers may not be reliable.
“They don’t really know where we’re at,” Muñoz said. “This is what we can’t do with the budget anymore.”