New Mexico state economists on Monday affirmed forecasts for a major financial windfall to state government linked to a booming oil sector despite recent fluctuations in energy prices, as the governor’s office passes from Republican to Democratic control.
Democratic Gov.-elect Michelle Lujan Grisham has set as top priorities an increase in resources for public education and universal access to preschool, as she prepares to succeed termed-out Republican Gov. Susana Martinez on Jan. 1.
The state is expected to finish this fiscal year with $1.4 billion in excess revenue and the forecast calls for revenues to outpace spending obligations again next fiscal year, resulting in a $1.1 billion surplus, according to economists at three state agencies and the Legislature.
Financial reserves are expected to swell to $2.5 billion by June 2019, equal to 40 percent of annual general fund spending.
Budget analysts for the Legislature trace about 80 percent of growth in state income during the current fiscal year directly to the oil and gas industry through severance taxes, rent, royalties and secondary taxes on sales and business-to-business transactions.
“You can see oil production has just been skyrocketing every month,” said Jon Clark, economist to the Legislative Finance Committee.
When the Democrat-led Legislature convenes in January, lawmakers will confront a court order to expand resources to struggling public schools — and in particular to students from low-income and minority families, including Native Americans.
Democratic House Speaker Brian Egolf on Monday said lawmakers are working toward an education reform package that phases in new spending over several years, gradually expanding preschools education and increasing teacher pay among, among other measures.
Financial analysts for the state and leading lawmakers cautioned that New Mexico remains heavily reliant on fickle oil and natural gas markets.
“Revenue could drop just as quickly as it boomed,” said state Rep. Patricia Lundstrom, D-Gallup, the chairwoman of the budget-writing Legislative Finance Committee in a newsletter published Monday. “Any expansion should be cautious.”
At the same time, she described pent-up demands for money at short-staffed state agencies, a multi-year waiting list for services to the disabled and plans to build a new workforce for early childhood education.
Republican Senate minority leader Stuart Ingle of Portales stressed the need to repair roads, particularly deteriorating infrastructure in the state’s southeast corner.
Officials with the departing Martinez administration urged lawmakers to maintain 25 percent reserves to guard against future economic recession and gyrations of the oil industry. That still would leave the state with about $950 million in unspent money by June 2019, said Finance and Administration Department Secretary Duffy Rodriguez.
Lundstrom and Egolf said the state is in a position to pay for construction projects directly from savings without issuing bonds to creditors to avoid future interest payments.
The state’s creditworthiness recently was downgraded by a major credit ratings agency because of mounting, unfunded public pension obligations.