Gloomy news for NM budget

Forecasts put state more than $500M in the red

RED RIVER — Lawmakers who must figure out how to haul New Mexico out of its deepening budget hole heard gloomy forecasts Wednesday as they get ready to head into a special legislative session next month to begin coming up with fixes.

The state ended the budget year 2015-16 on June 30 about $131 million in the hole even after transferring money from reserves, according to figures released at a meeting of the Legislative Finance Committee. And there’s a projected shortfall for the current budget year of $458 million.

The decline in oil and natural gas prices has savaged the state’s finances. There was an 8.7 percent drop in revenue, or $545 million, in the justended budget year from the previous year.

Each drop of a dollar in the price of a barrel of oil means a reduction of about $9.5 million, and that is compounded by the slowing economy in the state’s oil and gas producing regions.

Finance and Administration Secretary Duffy Rodriguez told the committee there are indications of a gradual recovery of drilling activity in New Mexico, but most revenue benefits would be seen in the next budget year, not the current one.

The committee was told that according to the New Mexico Oil Conservation Division, active drilling rig counts fell from a high of 102 rigs in December 2014 to 13 rigs in March 2016 and leveled off at 30 this month.

Legislators are considering using

the $219 million Tobacco Permanent Fund, which is fed by a settlement with big tobacco companies, to fill the gap for the just-ended year and to help plug the current year’s hole.

But that still would leave a shortfall of nearly $326 million for this year’s $6.2 billion budget — and the state’s operating reserves would be reduced to zero.

So legislators — even as they’re eyeing the Nov. 8 election in which all House and Senate seats are up for grabs — must decide what it would take to achieve solvency. The state Constitution requires a balanced budget.

“It’s going to take sacrifices from everyone, no question,” said Sen. Carlos Cisneros, D-Questa, vice chairman of the Senate Finance Committee.

Options outlined to the committee in broad terms included cutting spending, raising revenues — which could include not just tax increases, but closing tax loopholes —and sweeping up surplus balances in various state funds.

“The longer you take to address this issue, the fewer options you have,” LFC Director David Abbey cautioned the committee. For both legal and practical reasons, it should be done quickly, he said.

Gov. Susana Martinez has said she will call a special session sometime in September and wants all the budget issues dealt with.

Not to do so would be “irresponsible and typical kick-the-can Santa Fe politics,” her spokesman, Michael Lonergan, said in advance of the meeting.

But it appears unlikely all the fixes for the current year would be enacted in a special session that’s intended to be short.

“I don’t sense that we have a consensus in there,” LFC Chairman John Arthur Smith, D-Deming, told the Journal in an interview outside the committee’s meeting room.

Martinez opposes any tax increases, a view shared by many lawmakers, especially Republicans.

“I have no interest in letting any revenue-raising proposals get through my committee,” said Rep. Jason Harper, R-Rio Rancho, chairman of the House Ways and Means Committee.

But other lawmakers are resistant to more spending cuts.

“We’re not cutting anymore; we’re amputating,” objected Sen. Howie Morales, D-Silver City, reflecting the concerns of legislators worried about the potential impact on education and social services.

The LFC and the Martinez administration are working to identify potential revenue sources, such as money that was appropriated for capital outlay projects — years ago, in some cases — that hasn’t been spent, or shifting the funding source for some capital projects to severance tax bonds, freeing up general fund revenue that otherwise would be used for them.

The state agencies under the governor’s control have been ordered to come up with 5 percent spending cuts; the LFC estimates that could free up about $50 million.

Asked about possible cuts to public schools, Rodriguez said, “We would not be looking to disrupt anything classroom-related.”