SANTA FE, N.M. (AP) - New Mexico state government income defied expectations amid the pandemic by increasing slightly during the fiscal year that ended June 30, but economists warned Wednesday of a highly unpredictable future for state finances.
In an unusual pronouncement, four government economists said they could not pinpoint how much income the state is likely to receive during the current and coming fiscal years to help sustain public education, health care, public safety and other crucial services.
They instead said general fund income may range from $6.8 billion to $7.6 billion during the coming fiscal year - with current annual spending obligations of $7.2 billion.
The twice-annual revenue forecast ordinarily provides a specific benchmark for state lawmakers as they outline a budget before meeting in January. New Mexico Gov. Michelle Lujan Grisham has asked most agencies to trim spending proposals by 5% for the coming fiscal year.
“What’s really uncertain is the economy, COVID, any federal stimulus actions, oil and natural gas recovery,” Finance and Administration Secretary Debbie Romero told legislators on a state budget-writing committee. “We don’t know what the temporary job losses are going to be, whether they’re going to be permanent.”
State income is expected to decline by 7% to 18% during the current fiscal year - falling to as low as $6.4 billion. At the same time, accessible state reserves have swelled to $2.1 billion, providing a financial cushion.
“The reserves give us the flexibility to make sure that we continue to provide critical services to New Mexicans who need them most and also ensure that the state’s fiscal house is in order,” Taxation and Revenue Secretary Stephanie Schardin Clarke said.
In a June special session, lawmakers trimmed about $400 million from current year spending and appropriated $750 million in federal recovery funds, as they reined in pay increases for public employees, refinanced infrastructure projects and dialed back business incentives.
Economists now say government income exceeded expectations by nearly a half-billion dollars during the fiscal year ended June 30 - as the federal government pumped money into business payrolls, unemployment benefits, $1,200 economic impact checks and cheap credit.
The programs apparently boosted tax collections on personal income and retail sales. For a time, many New Mexico residents received more money in unemployment benefits than when they were employed - before a $600 weekly federal supplement fell to $300 in August and expired in early September.
Those programs have ended or tapered off in the midst of stalled negotiations over a new aid package in Congress, the presidential election and concerns of a possible winter resurgence of COVID-19.
Acute signs of economic distress span most of the state economy.
Petroleum production, which routinely accounts for more than a quarter of state general fund spending, declined in average daily volume by 23% from February through July, as the sector shed 30% of employment. Employment in the tourism and hospitality industries fell by 29%.
House appropriations committee chairwoman and Democratic state Rep. Patricia Lundstrom of Gallup said in a statement that sustained state spending for the health and safety of New Mexicans is “critical.”
Sen. John Arthur Smith of Deming, who leaves office in January after having lost the Democratic primary, warned that the state has begun borrowing from the federal government to sustain unemployment benefits and cited speculation within the oil industry that petroleum demand will never return to pre-pandemic levels as energy use shifts to renewable sources.
He said stabilizing the state’s revenue and phasing in different taxation rates is now more important than ever. “This would be a great time - and we should have started several months ago,” he said.
The state’s August unemployment rate of 11.3% exceeds the national rate of 8.4%. The rate is roughly 15% in oil-dependent Lea County, in southwestern New Mexico, and to the north in the tourist haven of Taos County.
Lujan Grisham has taken a cautious approach to reopening the economy, while large school districts in Albuquerque and Las Cruces have postponed a return to in-person instruction until at least January.
New Mexico’s current health order limits businesses, including retail outlets, private schools and indoor restaurant areas, to 25% of capacity, while hotels and lodges can seek certification for 75% occupancy. Masks are mandatory in public, with a 10-person limit on public gatherings and a 14-day self-quarantine requirement for travelers entering from high-infection rate states that currently include all five neighboring states.
Nearly half of state general fund spending is devoted to public school education, and health care takes up the second largest portion.
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