Officials unveil rosier forecast
New projections put state revenue around $1B to $2B higher than earlier estimates
The outlook for New Mexico’s revenue brightened Wednesday as state officials and economists gave a rosier forecast than the grim picture they painted several months ago — all while stressing there’s still plenty of concern about the months and years ahead.
Revenue for the fiscal year that begins in July 2021 is now projected to be between $6.8 billion and $7.6 billion, according to the new estimates. That’s a big shift upward from the $5.9 billion forecast in June.
The new numbers, if they hold up, would give the state a broader base of cash reserves to work with than officials had anticipated, potentially lightening the extent of belt-tightening legislators need to undertake next year.
“That was pretty unexpected,” Debbie Romero, acting secretary of the Department of Finance and Administration, said at a key legislative hearing. “It’s a better picture for us going into the [next] legislative session.”
The estimates marked a surprising turnaround after officials and legislators for months beat a woeful drum about what they expected to be a devastating blow leveled by the coronavirus pandemic on state finances and the economy.
“I just feel like at this point it’s looking a lot better, and I’m pretty enthused about that,” Rep. Patty Lundstrom, chairwoman of the House Appropriations and Finance Committee, said after the hearing.
Lundstrom, a Gallup Democrat, said reserves could remain as high as 25 percent of spending levels, after officials had projected in June they would fall to 11 percent.
She added that state agencies may
not have to cut spending as much as expected next year. Over the summer, the executive and legislative branches called for agencies to propose budgets that would cut outlays by 5 percent.
“It may not have to be that deep,” Lundstrom said.
Despite the more hopeful forecasts, officials noted that while the new estimates are higher than they were in June, they are still far below projections before the pandemic began. In December, economists had forecast fiscal year 2022 revenue at $7.9 billion.
There’s also a heck of a lot that economists don’t know.
“There is significant uncertainty in the current outlook,” Legislative Finance Committee chief economist Dawn Iglesias told lawmakers.
State revenue will depend on many unknown factors, including the spread of COVID-19, a potential vaccine, a recovery in the job market, oil prices and production, and whether the federal government approves more stimulus aid for states.
The fact that the presidential campaign season is in full swing is likely contributing to a lack of action by Congress to approve more relief for states, Romero said.
“We would have hoped to have seen action by the feds,” she said.
The state doesn’t know how many of the job losses it has suffered will be permanent, nor does it know how many small businesses will survive the pandemic and related public health orders, Romero said.
The new projections also are out of step with the dire economic figures seen both in the state and across the nation, economists pointed out.
New Mexico lost more than 100,000 jobs in April, and it had only recovered around one-third of them by August. The hospitality and mining sectors were hit the hardest, falling 29 percent and 30 percent, respectively, in August compared with the same month last year, according to the Legislative Finance Committee.
Although oil prices recovered faster than expected, New Mexico
crude remains below $40 per barrel, a level that is unlikely to convince producers to significantly reverse the huge drop in active rigs since the pandemic started.
“Revenue data since the last forecast came in stronger-than-expected, in a manner seemingly inconsistent with the state’s economic conditions,” Legislative Finance Committee economists wrote in their presentation.
Given all the uncertainty, legislators said they were more likely to have confidence in the lower end of the estimated revenue range given by the economists.
“As the conversation progressed, I found myself drifting toward the lower one because it seemed most of the conversations were saying employment’s not coming back, we don’t know if we’re gonna get more stimulus, et cetera,” Rep. Randal Crowder, R-Clovis, said during the Legislative Finance Committee meeting.
Lundstrom, who will be a key part of the budget-crafting process in the next session, agreed with that approach.
“We need to look at it more from the conservative side, just because there’s too much volatility in our building of the budget revenues right now,” she said.
As for the current fiscal year, which began in July, revenue is expected to come in between $6.4 billion and $7.3 billion.
Lawmakers approved an initial $7.6 billion budget for fiscal year 2021 in February, but an oil price war and the coronavirus pandemic put that plan in peril only weeks later.
Legislators went into a special session in June and approved spending cuts to the budget, a final version of which reduced spending by $415 million.
Gov. Michelle Lujan Grisham’s office released a statement Wednesday outlining its Cabinet secretaries’ announcement of “an overall more positive outlook for New Mexico finances than was forecast in June.”
New Mexico House Republicans then criticized Lujan Grisham’s administration for “prematurely celebrat[ing] a better than expected budget outlook as the state heads into the final weeks of the election.”
“New Mexicans across the state are unemployed, many permanently, and the fact that this administration is seemingly taking a victory lap shows how out of touch Santa Fe politics is with everyday citizens,” Minority Whip Rod Montoya, R-Farmington, said in a statement.
Still, legislators pointed to encouraging signs in the economy and oil markets moving forward.
“We’re cautiously optimistic,” Lundstrom said.