State asks agencies to find 5% to cut from budgets

Lawmakers in January likely will face $990M deficit for fiscal year 2022

Gov. Michelle Lujan Grisham’s administration is urging state agencies to cut spending again after many departments underwent budget reductions in June amid the economic downslide spurred by the coronavirus pandemic.

A memo the state Department of Finance and Administration sent to Cabinet secretaries and key budget personnel calls for state agencies to reduce general fund spending by 5 percent for fiscal year 2022, which begins in July 2021.

The memo was sent in early August to members of the governor’s Cabinet and other state officials central to budgetary issues. It advises agencies to craft appropriations requests including the reduction ahead of the 60-day legislative session that begins in January.

“DFA directed agencies to identify cuts that will not or will have limited impacts on core constituent services while maximizing savings wherever practical,” said Henry Valdez, a spokesman for the department. “Maintaining operations throughout the state remains a top priority while we continue responding to the public health emergency.”

There may be exceptions to the guidance: a recurring program that

previously was funded through a onetime source, programs with a funding formula predicting an increase in costs, programs such as Medicaid expecting an increase in costs and state prisons expecting “significant caseload/population increases,” the memo says.

The memo calls for positions that have remained vacant for more than two years and vacancies “not considered a critical component of the agency’s core mission and operations” to go unfilled.

Longtime Senate Finance Committee Chairman John Arthur Smith — who lost his reelection bid and will not be in the Legislature during the 2021 legislative session — called the cuts “prudent.”

But he acknowledged it likely will be “extremely difficult for small agencies” to make a 5 percent cut across the board. Smith also warned against funding new programs.

“When your economy is sucking air, every governor I’ve served under, which is six of them, typically wants new programs,” Smith said. “Before you start making cuts, you need to trim back on brand-new initiatives.”

House Appropriations Committee Chairwoman Patty Lundstrom, D-Gallup, did not immediately return a phone call Tuesday seeking comment.

During the special legislative session in June, several months after the start of the pandemic, lawmakers and the governor approved spending reductions for most state agencies of about 4 percent as New Mexico contended with severe declines in oil and gas revenue and gross receipts taxes.

New Mexico is heading into the 2021 legislative session with a possible $990 million deficit for fiscal year 2022, state economists warned in June.

The state has used $750 million in federal pandemic aid and has had to tap into reserves to pay for $7.4 billion in spending obligations approved by the Legislature.

The Legislative Finance Committee adopted guidelines last week that also called for an average 5 percent cut in general fund spending for state agencies. Charles Sallee, deputy director of the committee, said the suggested reduction would make up for roughly one-third of the total 15 percent deficit with which the state is grappling.

The Legislative Finance Committee also called for “recurring reductions, one-time sweeps of accounts” and reducing some tax expenditures. Sallee said the next state revenue forecast will be unveiled in December at the latest, ahead of the legislative session.

“LFC’s guidelines really highlight how the state should continue to invest in programs that work and look at the performance data to help prioritize that,” Sallee said.