New Mexico state government braces for financial pain

Politics - Government

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 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 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.

“No one knows whether the pandemic will result in only a temporary drop in economic activity, or whether it will be a prolonged event that causes irreparable harm to the economy, taking years to recover,” economic advisers from the Legislature’s budget and accountability office said in a written briefing.

State income is expected to decline by 7% to 18% during the current fiscal year — falling to as low as $6.4 billion. That decline would erode available financial reserves that swelled to $2 billion in June.

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 helped sustain retail spending and related gross receipt tax collections in New Mexico. 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%.

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 tourism 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. Health care takes up the second largest portion, in the state where about 40% of residents are enrolled in federally subsidized Medicaid.

Federal Medicaid matching funds have increased in response to the Pandemic, easing pressure on state finances.

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