Sept. 05–New Mexico is once again riding high with projections of $1.2 billion in “new” money for the coming budget year, due in large part to surging oil production in the Permian Basin.
It’s certainly welcome news, particularly given our state’s many needs — everything from skyrocketing crime and homelessness, to underfunded pension systems, to a judicial mandate the state start spending more on public education. But in all the exuberance over the windfall, state lawmakers and the new governor must resist the urge to spend it all — because if history is any indication, this high won’t last.
Like it or not, we have a volatile revenue stream (see above) that relies heavily on market fluctuations of the oil and gas industry, and our state’s fortunes frequently turn on a dime.
So when the legislative session begins in January, our new governor and lawmakers need to be prudent and sock away as much into reserves and the new rainy day fund as is prudent.
Lawmakers have had to go into reserves during downturns in oil and gas just to keep the state above the red ink — in 2016, reserves were just 1 percent of the state’s annual general fund appropriations. That left virtually no cushion in the event of a further drop in revenues or an increase in mandated spending, such as Medicaid. And it damaged the state’s credit rating and made borrowing money for projects more expensive.
Lawmakers led by retiring state Rep. Larry Larrañaga, R-Albuquerque, and joined by Gov. Susana Martinez last year created a true rainy day fund to help the state ride out some revenue lean years. It’s now up to lawmakers and the next governor to put enough into reserves and that fund so they can make a meaningful difference when the need arises.
It’s not as politically profitable as bringing home pork projects, but when the next revenue downturn hits, all will be glad for it. The alternative is a host of painful cuts — as when state employees were handed furloughs, pay freezes and mandatory budget cuts. Sen. John Arthur Smith, D-Deming, vice chair of the powerful Legislative Finance Committee, cautioned colleagues after the revenue projections were unveiled: “Hopefully, we won’t foul this thing up. It’s great news for the entire state, but we still have huge economic problems.”
This is a huge opportunity for the state to get its fiscal house in order and create a buffer so when oil and gas revenues tank again — and they always do — New Mexico doesn’t have to resort to the draconian austerity measures that have been implemented in the not-so-distant past.
Because the only thing worse than having to deal with those brutal budget cuts would be knowing they could have been avoided — or at least made less painful — if lawmakers and the governor had just been more fiscally responsible.
Of course, not every dollar of the new revenue should be put aside. State economists are recommending lawmakers maintain cash reserves of at least 20 percent of state spending — roughly $1.2 billion. A lot of money, but NM is already on track to have $1.1 billion in reserves by the end of fiscal 2019.
The $1.2 billion economists are projecting in “new money” — the difference between projected incoming revenue and current spending levels — should allow state leaders to boost reserves to the suggested 20 percent, pump a little extra into the rainy day fund and then invest in state priorities.
In fact, lawmakers should invest part of this windfall into expanding early childhood education programs like pre-K and in-home visits. Best of all, they can do it without tampering with the state Constitution and going into the permanent fund, diminishing future payouts from that fund to schools.
They should also consider a one-time payment to the pension funds to help cover unfunded liabilities, but only if they are also willing to do the hard work of overhauling benefits for new workers to make the pension systems sustainable.
And they should finally tackle much-needed tax reform, again to ensure long-term financial stability for our state by leveling the paying field for residents and business owners, and ensuring tax breaks deliver a return on investment. They began that arduous task in the midst of the 2017 budget crisis, but haven’t been able to get it across the finish line.
The revenue projections offer a world of opportunities to make forward-thinking decisions. Or we can squander the money for pet projects and feel-good legislation that fail to move the needle. It’s up to lawmakers and our next governor to decide.
This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.
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