New Mexico: Don’t go hog wild in spending

Rich, New Mexico is rich, all thanks to black gold, the gift that keeps on flowing and filling state coffers. For now. And that’s what all involved in figuring out what the state should do with an expected $1.2 billion — that’s with a “b” — in new money for fiscal year 2019 have to remember. The state is fat and happy now, but only because of an oil boom in Southern New Mexico.

As New Mexico well knows, oil giveth and oil taketh away.

Booms come and booms go. The flush of cash is likely temporary and, above all, is unpredictable. An explosion in oil production did not occur because of Gov. Susana Martinez’s stewardship of the economy. It didn’t happen because of brilliant maneuvers by the Legislature. It’s not occurring because of the strength of the state’s private economy.

No, the oil boom — which has made New Mexico the third-largest producer among states behind Texas and North Dakota — is due to a number of factors, almost none of which we control. Should our lawmakers keep that instability in mind, perhaps New Mexico can ride this wave and use it, yes, to pay for services that have been underfunded during the recent bust years but also fix structural problems to put the state in a better position going forward.

Right now, the leaders of the state — both House Speaker Brian Egolf and Senate Majority Leader Peter Wirth, as well as gubernatorial candidates Michelle Lujan Grisham and Steve Pearce — seem to understand that the 2019 legislative session offers an opportunity to make smart, strategic investments in New Mexico. Which, by the way, is not the same as spending as if there’s no tomorrow. And if they don’t get it, Sen. John Arthur Smith, the budget hawk from Deming, remains in place to make sure all involved remember to be prudent.

The first term of a new governor with plenty of money is the time to make long-lasting changes in the state’s tax system, so dependent on gross receipts tax spending — also an unpredictable source of revenue. It is time for a gross receipts tax system with fewer exemptions, more certainty and one that reduces tax pyramiding. Dare we hope, too, for a flattening of the tax rate, with possible declines in state revenues bolstered by the new dollars rolling in?

Just as important is the need to lay the foundation for industries that will provide revenue when oil and gas businesses — as they will — dry up.

In responding to news of the projected surplus, Lujan Grisham rightly focused on the need to begin transitioning the state to a renewable energy economy, pledging to put solar panels on all state buildings and developing the sorts of power grids that will help the state export energy. She identifies other priorities — making investments in the state’s infrastructure, including roads, water systems and broadband internet, as well as funding statewide universal pre-K.

Pearce has said during the campaign that some of the surplus will be needed to beef up New Mexico’s pension system, where benefits promised and being paid out are expected to exceed dollars coming in. The state’s bond rating took a hit because of pension concerns, and, yes, getting the balance right is important financial business. Pearce also said he supports spending on mental health initiatives and fixing infrastructure; the beauty of spending to fix roads, dams, bridges and the like is that those aren’t recurring expenses.

Building a cushion for the next downturn matters, too, and the expected extra revenue should make socking away money for the hard times easier. A cushion of 20 percent is being recommended. Starting in July 2018, the state’s new rainy day fund — paid for with money in excess of a five-year average of oil and gas tax collections — went into effect. For the first time in a decade, the state will have money both to spend and keep in reserve.

After shoring up reserves, there must be recognition that a few big bills are coming due — there likely will be increased spending in K-12 education as a result of a lawsuit that found the state was not funding schools to the level required by the constitution. A potential payoff in water-rights lawsuits also could claim a chunk of change. This spending won’t be by choice, but rather necessity.

Other needs: Money must be spent rebuilding the behavioral health system, which was shredded during the Martinez administration. Taking care of substance abuse problems — building treatment centers and the like — is essential, too, and is the kind of spending that will save money down the road. More money is needed for prisons, both for staffing and facilities. So much need. (As an aside, rescuing University of New Mexico athletics should not be a priority; if legislators want to run the college and make decisions about sports, direct the bosses at UNM to find other ways in a $33 million athletic budget to save the $1.9 million that cutting four sports is supposed to bring in — men’s football spending certainly can absorb some cuts. A bloated athletics department does not deserve more money considering other needs.)

The $1.2 billion in projected new revenues — and given the trends in oil and gas, those numbers could be higher by January — offers the state an unprecedented opportunity to spend so that New Mexico emerges stronger, more economically diversified and better positioned for the future. The key, as always, is to spend strategically rather than going hog wild on programs that then must be cut during the lean years that are sure to follow. For once, let’s be smart about spending.

The first term of a new governor with plenty of money is the time to make long-lasting changes in the state’s tax system.