Bruce Krasnow / Santa Fe New Mexican / Dec. 4, 2017
For the first time in two years, state lawmakers will be heading into a session with a small cushion of new money that can be used to increase reserves or restore some spending cuts to government programs, including public education.
The state’s consensus revenue estimate, outlined Monday for the Legislative Finance Committee, projects recurring general fund revenue to hit $6.1 billion this fiscal year. That is about $150 million higher than just four months ago.
Lawmakers were also told that when they convene Jan. 16 to draft a spending plan for 2019 there will be almost $200 million in so-called “new money” — the amount above what it takes to pay for all current employees and services.
For the past two years, Gov.Susana Martinez and lawmakers have faced budget deficits and a stagnant economy, factors that led to the depletion of state reserves for day-to-day services and spending cuts throughout state agencies. State reserves stood at over $700 million before dropping to zero in the midst of a fiscal crisis that led to unconstitutional deficits.
The fiscal crunch also led Moody’s Investors Service to lower the state bond rating, which has increased the cost of borrowing for major construction projects. Behind the spiral were falling crude oil prices that are vital to the state economy. Oil dropped below $30 a barrel but has climbed to the mid $50s.
“It’s really great to be here today to present some really good news,” said Duffy Rodriguez, Cabinet secretary for the Department of Finance and Administration.
Economists said revenues are rebounding and money coming into the state’s operating fund should reach a new high in 2019 at $6.3 billion. But they cautioned there are a lot of uncertainties with federal tax reform and how deficits in Washington, D.C., might trigger significant cuts in mineral royalty payments to the state as well as payments in areas such as Medicaid and Medicare.
“There are so many things we don’t have control over,” said Sen. Sander Rue, R-Albuquerque.
Legislative Economist Jon Clark also said that, although employment growth in New Mexico is now more in line with the national average, there are still fewer workers in the state than before the 2008 recession.
He also said the rebound in gross receipts taxes from consumer and business spending is not as broad-based as many would believe. A big bounce has come from the Permian Basin, where crude oil production is at record levels.
The higher price of oil has boosted production in the Permian Basin. September saw the highest output ever at more than 15 million barrels for the month. Economists say a crude oil price in the mid-50-dollar range is ideal for the state because companies in Southeast New Mexico can operate at a substantial profit. Other basins in North Dakota or Alaska need a much higher price for producers to break even.
Despite efforts to diversify the state economy, growth in revenue “is more dependent than it ever has been” on energy, Clark told lawmakers.