With New Mexico continuing to reel from the economic downturn caused by the COVID-19 global pandemic and a record drop in oil prices, legislators from Chaves County and around the state will have to make some tough choices to fill a massive hole in the state budget.
No date has been set for a special session, but lawmakers say one will need to be held for the state to have a balanced budget as required under the state Constitution.
“Right now, we have a $7.6 billion state budget that begins July 1 and we can’t afford that, therefore, how much do we have to peel back,” said state Rep. Phelps Anderson, R-Roswell.
Anderson, whose House District includes portions of Chaves, Lea and Roosevelt counties, and is a member of the New Mexico House Appropriations and Finance Committee, made the comments during an April 29 interview. State Reps. Candy Spence Ezzell, Greg Nibert and state Sen. Cliff Pirtle, all Republicans from Roswell, also took part in the interview.
Anderson said the size of the budget shortfall is “a moving target” with the gap between what is set to be spent and the amount of revenue that comes in growth over time. However, he said the number he has heard being discussed is $2 billion. A recent memo released by state economists, though, predicts the budget hole will be in the $1.8 billion to $2.4 billion range.
The existing Fiscal Year 2021 budget was crafted and passed during the 30-day regular session in February, amid predictions of a record budget surplus from a spike in oil production and higher oil prices.
“The budget is based on $52 a barrel oil. That’s 40% of the state budget,” Nibert said.
As a result of the dwindling revenue, legislators will have to roll back spending and/or enact tax increases. Anderson said he thinks there will likely be some of both, although local lawmakers say higher taxes are a nonstarter.
“There is no way we can raise taxes in the current situation we are in,” Pirtle said.
Taxes are derived from economic activity and earned income, both of which have slumped considerably in recent months with many businesses shuttered in accordance with state public health orders meant to slow the spread of COVID-19.
Even significant tax increases, Nibert said, would not yield enough to fill the current budget needs.
“You can increase taxes, but people’s income is going to be dramatically less this year than in prior years. So yeah, you can increase taxes, but the net sum is still going to be woefully short of what our experience has been,” he said.
Tax hikes, Nibert added, would put additional burden on taxpayers already struggling to make ends meet. He said instead new spending cuts should be looked at.
“I am certainly not in favor of putting additional burden on the taxpayers because the state wants to continue some of these programs,” he said.
Some of the easiest new spending to pare back, Nibert said, are new programs approved in the last session that have not yet been spent.
One example Anderson cited as a potential target is the Early Childhood Education and Care Fund, created with a $320 million appropriation in the last legislative session.
“So I just look at that and go, that one, that’s a goner, first to go,” he said.
Ezzell said state government continues to grow without contributing “a darn thing” to helping local economies in southeastern New Mexico. She points to the state’s film tax credit for production companies that make movies in New Mexico as an example.
Nibert said older programs should be looked at and eliminated if they are not found to be effective. He said currently when cuts have to be made, they are across the board, or to all programs.
Another component in dealing with the shortfall are the state’s reserves, or money set aside for budget shortfalls.
State Sen. John Arthur Smith, D-Deming, said Monday the current shortfall is one of the state’s most severe, but the state now has more reserves that can be used to help weather it.
“We’ve got about 25%, about $1.7 to $1.9 billion, in reserves. Typically in the old days, we used to carry 10% but we learned in the last recession 10% wasn’t even adequate,” Smith said.
The 25% is still likely not sufficient to fill the budget shortfall, but more is on hand to do that than in the past. Tapping reserves though is more complicated than it seems.
Smith said the economic fallout from the pandemic is likely to continue for about a year or two or until a vaccine is produced. Using all the reserves during the special session would leave little money to fill the budget holes likely to still exist when lawmakers meet in January for their regular session.
Anderson added reserves don’t just function as a rainy day fund, as they do in some states. Rather, they also contain money committed to other causes, making the amount in reserves less than it seems.
Unlike other states that rely on oil for a large share of state revenue, New Mexico has a smaller reserve. More conservative states, Pirtle said, have reserves at 100% of their state’s budget allowing them to fully cover a state budget should a massive downturn occur.
Unlocking the reserves can also be difficult. Anderson said doing so requires the approval of large supermajorities of legislators. Sometimes other state accounts must be depleted beforehand.
One other element that could improve the state’s financial outlook, Smith said, is some help from the federal government, which would afford states greater flexibility in how federal money is spent in response to the pandemic.
He said right now the state is restricted in how they can do so. In addition to coming up with a way for the state to figure out how to pay its bills, Smith said the Legislature should look at how to fund the COVID-19 response in terms of public health and how to help local governments that have seen large swaths of their budgets take a hit from the fall-off in money from gross receipts tax.
Local lawmakers though say they believe a deal on the budget shortfall will likely be crafted by the Democratic leadership, who hold majorities in both chambers.
“I think the deal will get cut and the majority will have cut it,” Anderson said.
Pirtle agreed, saying a deal will likely be on the desks of senators and after being allotted a small period of time to read hundreds of pages, he said there will likely be a vote on a budget fix.
Smith said Monday he does not know how things will take shape in the House, but he has worked hard to keep members of both parties on his committee informed of the situation and changes that become evident in the modeling used to predict the depth of the state’s budget. Such an arrangement, he said, allows input from members of both parties.
However, he said no final plan has been agreed to yet.
“We are hoping that we can get a resolution in there, since people have had a chance to monitor some of the modeling going on, (a resolution) will come quicker, but we don’t believe at this stage that will be anything agreed to until we get into session,” Smith said.
Breaking news reporter Alex Ross can be reached at 575-622-7710, ext, 301, or firstname.lastname@example.org.