On August 16, during a meeting of the New Mexico Legislative Finance Committee (LFC) held in Chama, New Mexico, legislators were told by LFC executive economists the state would have a staggering projected $2.5 billion in “new” money during the 2023 budget year that starts on July 1, 2023. The term “new money” is the amount that represents the difference between forecasted revenue and current spending levels. The total revenue was forecasted to rise from $9.2 billion in the fiscal year that ended on June 20, 2022 to nearly $10.9 billion for 2023.
On December 12, the Legislative Finance Committee released its Consensus Revenue Estimate for fiscal year 2024 which begins July 1, 2023. It was reported that New Mexico’s revenues have ballooned even further with the state’s revenues from oil and gas production increasing at record levels. The new estimates released project the state will have an astonishing $3.6 billion in “new” money available for the budget year that starts on July 1, 2023.
The link to the Consensus Revenue Report is here:
During the last two years, New Mexico’s revenue levels have steadily increased due to surging oil and natural gas production. The spike in revenue is expected to continue over the coming year. According to the Consensus Revenue Report the latest projections by fiscal year for the last 2 full years are:
2022 – $9.7 billion, up from $9.2 billion in August
2023 – $10.8 billion, up from $9.8 billion in August
2024 – $12 billion, up from $10.9 billion in August
EXECUTIVE SUMMARY
An edited Consensus Revenue Report Summary reports as follows:
Recurring revenues for Fiscal Year 2022 were $9.675 billion, up $1.59 billion, or 19.7% , from Fiscal Year 2021. Revenue strength is the result of sustained high inflation raising expectations for gross receipts tax and income tax collections. Additionally, consumer spending has remained strong, wage growth has been robust, and high oil and gas revenues are supported by global supply-side constraints raising prices and encouraging production expansion.
Oil and gas revenue strength is pushing severance tax and federal royalty collections higher above their five-year averages, resulting in larger transfers to the early childhood trust fund than was expected in August and boosting the amount reaching the general fund throughout the forecast horizon. Estimated recurring revenues for Fiscal Year 2023 are $10.775 billion, up $928 million from the August estimate. Fiscal Year 2024 recurring revenues are estimated at $11.994 billion.
“New money,” or projected recurring revenue for the coming fiscal year less current year recurring appropriations, is estimated at $3.591 billion for Fiscal Year 2024, or 42.7% growth from the Fiscal Year 2023 recurring budget. General Fund Reserves and Transfers of Above-Trend Revenue. Including federal stimulus funds of $1.069 billion and nonrecurring legislative expenditures of $902.9 million, Fiscal Year 2022 total revenues are estimated to be $1.16 billion more than Fiscal Year 2022 appropriations.
Non-ARPA general fund revenues exceeded general fund appropriations by $706.5 million which will be transferred to the operating reserve and the tax stabilization reserve fund. The general fund financial summary detailed in attachment 1 illustrates the impact of the December 2022 revenue estimates on reserve levels. Ending reserve balances for Fiscal Year 2022 are estimated at $3.68 billion, or 49.3% of recurring appropriations. Because total reserve balances exceed 25% of recurring appropriations, the excess of the five-year average of oil and gas school tax collections –$1.34 billion – will be deposited into the early childhood education and care trust fund instead of the tax stabilization reserve.
Fiscal Year 2023 ending reserve balances are estimated at $5.22 billion, or 62.2%, prior to any legislative action in the 2023 session. Again, because reserves are expected to exceed 25% of recurring appropriations in Fiscal Year 2023, excess oil and gas school tax collections, estimated at about $1.25 billion, will flow into the early childhood trust fund. Additionally, excess federal oil and gas royalty payments above the five-year average, estimated at about $1.92 billion in Fiscal Year 2023, will flow into the early childhood trust fund.
… .
… [E] nergy companies in New Mexico have continued to drill at production
expanding rates, as well as increasing the productivity per well, breaking
production records each month.
Although falling prices would generally reduce tax revenues, production levels
are more than offsetting price declines leading to record levels of severance
taxes and federal royalty payments. About 62% of the general fund
forecast growth in FY23 is from severance taxes and federal royalty payments
as well as about two-thirds of the of the general fund growth forecasted in
FY24.”
DOUBLED REVENUES IN SEVEN YEARS
If the projected revenue levels if fact materialize in 2023-2024 budget year, it will mean New Mexico’s total revenues would have more than doubled over the last 7 years.
The $3.6 billion of additional revenues are not the only amounts that will be available for spending in the upcoming fiscal year. It was also reported that roughly $310 million in allocated budget dollars went unspent during the most recent fiscal year. This funding is available due to federal pandemic funds being used to supplant state dollars.
Revenue and Taxation Secretary Stephanie Schardin Clarke said this about the new revenue forecast:
“The December forecast indicates New Mexico is still in a solid position fiscally. … The strong revenues we’ve seen over the past couple of years allowed us to deliver significant tax relief to New Mexicans and still maintain historically high reserves to protect against unforeseen shocks.”
OIL AND GAS REVENUES SOURCE OF SURPLUS
Revenue from the oil and gas industry makes up nearly 40% of direct state revenue. Over the last two years, oil and gas production in the state has increased dramatically making the state more reliant than ever on both industries. According to the legislative economists, upwards of two-thirds of New Mexico’s revenue for the coming budget year is expected to come from revenue derived from the oil and gas industries.
The overwhelming primary source of the increased revenues is from oil and gas productions. New Mexico has become the nation’s second-highest oil producer in the country behind the state of Texas. It is advances in oil field production technology, like horizontal drilling, that have resulted increased production levels. Aztec Republican State Senator Steven Neville cautioned the committee that if oil prices were to drop significantly for a prolonged period of time period, which has happened in the past, it could torpedo the state’s revenue collections and he said this:
“If that drilling stops, our revenues will plummet fairly quickly.”
REACTION TO SURPLUS
In August, Gallup Democrat Senator George Muñoz called the $2.5 billion in additional revenues a “once-in-a-century” opportunity and said at the time:
“If we want to really change, for once and for all, and keep our commitment to reducing tax rates, lowering the [gross receipts tax and] making New Mexico competitive with other states, this is one of the greatest opportunities we could have. … You can change the complete path of this state … Your phones are going to be ringing off the hook [with demands on how to use the new revenues].”
On December 12, Muñoz had this to say about the $3.6 billion increased revenues:
“With this revenue forecast, there’s an opportunity knocking at our door. … No one in our state’s history has ever had this opportunity.”
Cabinet Secretary Debbie Romero of the Department of Finance and Administration told the LFC that risks exist to the record-high revenue forecast. Those risks include supply chain shortages and the ongoing Russian invasion of Ukraine. She also suggested to limit future spending obligations. She urged lawmakers to target spending during the upcoming legislation session to one-time needs like water projects, rural health care and broadband expansion. Romero said this:
“Those are the once-in-a-lifetime things we should invest in while not growing our recurring budget.”
WHAT TO SPEND SURPLUS ON
The 60-day legislative session is scheduled to begin on January 17, 2023. Governor Lujan Grisham and the New Mexico Legislature will over the next month decide how to spend the surplus. The Governor and the New Mexico Legislature will release their own, separate, proposed budgets and spending plans in early January before the start of the 60-day session. Budgets will be drafted based on the revenue projections and will include how much in reserves for any possible future budget shortfall. During the legislative session, there will be a consolidation and a consensus budget formulated that lawmakers will then approve for the fiscal year that will start on July 1, 2023 and end June 30, 2024.
Discussions are seriously underway on how to spend the record-high revenue during the 60-day legislative session. Those discussion include approving tax relief for New Mexicans, additional teacher salary increases and other initiatives.
Although Lujan Grisham has not yet released a full spending plan for the coming year, the governor has highlighted recent investments in affordable housing, education, public safety and health care. She has said she would push for funding during the upcoming 60-day session to provide free school meals to all New Mexico public school students. In a statement, Lujan Grisham said this:
“Our fiscal success will enable us to double down on the investments we know are working and explore innovative new strategies that move the needle and move New Mexico up in the rankings. … I need more investments in public safety.”
Top budget and finance officials in Lujan Grisham’s administration are urging lawmakers to use the windfall on one-time expenditures due to the risk of future revenue dips.
Los Alamos Democrat Representative Christine Chandler suggested the surplus be used for “A fund that supports water management and water infrastructure in the state.”
Rio Rancho Republican Representative Jason Harper suggested the surplus be used for “Roads, water projects. … That could go a long way to help the state.”
GOVERNOR MLG BUYS INTO REPUBLICAN POLITCAL DOGMA
Ignoring her top budget and finance officials to use the windfall on one-time expenditures, Governor Lujan Grisham is pressuring the legislature to provide more financial relief in the form of rebates with the increased revenue estimates. New Mexico legislators this year already used the state’s revenue windfall to provide tax rebates of $750 to individuals and up to $1,500 per household and to cut the state’s gross receipts tax rate.
The New Mexico’s gross receipts tax rate was cut by an 8th of 1% starting July 1, 2022 and increased to a quarter-percent reduction on July 1, 2023. The problem is that the Gross Receipts Tax (GRT) rate varies throughout the state from 5.125% to 9.4375%. It varies because the total rate combines rates imposed by the state, counties, and, if applicable, municipalities where the businesses are located. Businesses collect and pay the total Gross Receipts Tax they collect to the state, which then distributes the collected taxes imposed by counties’ and municipalities’ to them. The net result is that the Governor’s state tax cut was meager at best, it was viewed as more of a political ploy to get bragging rights in an election year that she cut taxes, and it resulted in negligible tax savings to individual consumers of about $25 a year.
https://www.tax.newmexico.gov/governments/gross-receipts-tax/
Republican William Sharer of Farmington, told the LFC “now is the time for real tax reform.” However, tax cuts now will mean less money available in future years, especially if the current oil and gas revenues decline.
Governor Lujan Grisham has shown a major interest in more tax rebates and that is getting support from both Democrats and Republicans. Lujan Grisham spokeswoman Nora Meyers Sackett said this:
“The governor has been working for several months to urge the Legislature to support using a portion of the one-time funds to deliver another rebate to New Mexicans as they continue to experience high costs due to inflation”.
The link to the quoted news source is here:
The specific size and scope of the rebates are under negotiation. The rebates will likely be the same as they were earlier this year with $750 per taxpayer or $1,500 per married couple filing jointly. The cost of such a package could exceed $1 billion.
Lujan Grisham’s interest in tax rebates represents a shift in position. During the campaign, Republican for Governor Mark Ronchetti proposed to make annual rebates automatic if the surplus grew by a certain amount, while Governor MLG and the Democrats wanted to have a say approving rebates. Lujan Grisham criticized Ronchetti’s proposal arguing his plan would lead to future budget cuts for New Mexico public schools.
However, because of the dramatic spike in revenues now being projected, the governor’s rebate would still leave the state with more than enough money to spend in other areas or to set aside for future years. Ronchetti came out with this nasty little, bitter reaction to Lujan Grisham’s change in position:
“Mark Ronchetti @MarkRonchettiNM · When we proposed giving a portion of the massive surplus back to tax payers the governor ran an ad saying we would have to cut funding for education and police to do it. Clearly that was a lie.”
Democrat Christine Chandler had this to say about the proposed rebates:
“This would be a way to help assist families address some of the inflationary pressures that they’ve been feeling these last several months.”
Belen Republican Senate Minority Leader Greg Baca said the proposed rebates mark a rare policy agreement between himself and the governor. Baca said this:
“Good governance starts with remembering that there is no such thing as extra money, only taxpayer money. … I believe those that earn that money are those best suited to spend it.”
Republicans also want to restructure how the state collects taxes. As it stands, there is a “layered” or stacked system of gross receipts tax where taxes are paid on every purchase made and manufacturers must pay a tax on each of the materials they buy to make their products. Some lawmakers are proposing getting rid of taxation on materials used for manufacturing and only taxing the sale of the final item sold. Aztec Republican State Representative Ryan Lane said this:
“Now is the time to make major changes to an antiquated tax system.”
Los Alamos Democrat Representative Christine Chandler, who is the chairwoman of the House Taxation and Revenue Committee, said there would still be funding left over after approving rebates to pay for changes to the state’s tax code. However, she noted rebates do not provide lasting financial relief for New Mexicans but are appealing because they do not encumber the state for future years. Chandler said this:
“I think it’s a reasonable approach for dealing with the unprecedented revenue levels that we have.”
Rio Rancho House Minority Whip Jason Harper said he would back an additional round of rebates and said this:
“In principal, this is the taxpayers’ money and returning some of that to them [in the form of rebates] is something I’m very supportive of. … [Tax code changes also afford] an incredible opportunity to make some lasting change.”
FUNDING FROM CONSTITUTIONAL AMENDMENT FOR EARLY CHILDHOOD PROGRAMS NEEDS CONGRESSIONAL APPROVAL
The surplus revenue will also translate into huge infusion of funding into several state trust funds. In particular the “Early Childhood Trust Fund” pushed for creation by the Governor in 2020 is projected to have its balance surge to nearly $5.4 billion by the end of the current fiscal year and more than $7.8 billion by the end of next year.
Gallup Democrat State Representative Patricia Lundstrom, the LFC’s chairwoman, said during the LFC hearing that legislation will be proposed to add additional beneficiaries to the Early Childhood Trust Fund such as behavioral health treatment programs.
In addition to the $3.6 billion of additional revenues, the New Mexico legislature will also have the additional revenue that will be generated by the passage of the Constitutional Amendment for Early Childhood programs. On November 8, the New Mexico Constitutional Amendment passed by a landslide on 70.34% YES vote to a 29.66% NO vote. A “yes” vote supported allocating 1.25% more in funding from the Land Grant Permanent Fund (LGPF) to early childhood education and the public school permanent fund. Passage of the constitutional amendment makes New Mexico the first state to guarantee a right to early childhood education while directing substantial, steady funding to child care and early education.
The funding will not be a one-time infusion, but a steady stream of about $150 million a year for early childhood programs. It could very well allow New Mexico to achieve a system of free child care and preschool for all state residents.
“New Mexico voters didn’t just approve the allocation of more dollars. They changed their constitution so that it now enshrines a right to education for children ages zero to five alongside the previous guarantee for children in grades K-12, making it the first state with such a guarantee.”
Links to quoted news sources are here:
What is not commonly known by the general public is that congressional approval of New Mexico’s voter-backed plan to tap more heavily into the permanent school fund must be approved by Congress before New Mexico can fully tap into the extra funds, estimated to total $236 million in the next fiscal year. Congress could leave Washington as soon as December 23 with a new, Republican controlled House taking over on January 3.
Senator Martin Heinrich and Representatives Melanie Stansbury and Teresa Leger Fernández are urging outgoing Republican Representative Yvette Herrell, who lost her reelection bid to Gabe Vasquez, to help secure final passage of the plan before adjournment and before she leaves office. As a state legislator in 2018, Harrell opposed the permanent fund proposal.
Supporters of the measure are pushing for Congress to add a one-sentence approval of the permanent fund changes to an end-of-the year spending bill expected to be adopted in the final days of this year’s congressional session. Failure to approve the New Mexico legislation before then would not necessarily be fatal. But supporters would have to start over in the new session, delaying consideration of the measure.
COMMENTARY AND ANALYSIS
The upcoming 2023 New Mexico legislative session that begins January 17 is a 60-day session. Debate is now hot and heavy on how to spend the historic surpluses. There is indeed a lengthy list on what the surplus can be spent upon. The list includes:
Major infrastructure needs such as roads and bridge repair, funding for wastewater projects, dams and acequia projects, the courts, law enforcement and the criminal justice system, funding for our behavioral health care system, job creation endeavors, economic development programs, funding for the Public Employee Retirement funds to deal with underfunded liabilities and benefits are all likely topics of discussion during the upcoming 2023 legislative session. All merit serious consideration and funding with the historic surplus.
In March of 2022, A KRQE investigation revealed the ongoing challenges New Mexico’s state road officials and some county officials are dealing with in taking care of some of New Mexico’s ailing bridges. Dozens of bridges across some of the most rural parts of the state are rated in either poor or critical condition, requiring millions of dollars to repair or replace. It will cost an estimated half-billion dollars just to bring all of the state’s bridges up to fair condition. New Mexico is getting millions of dollars in federal funding to help repair roads, bridges and tunnels in the state. In fiscal year 2023, $549.4 million is going toward the sate and be used to fund different programs aimed at improving safety and reducing carbon emissions. The funding comes from the Bipartisan Infrastructure Law that gives $59.9 billion in fiscal year 2023 to states across the country.
https://www.krqe.com/news/larry-barker/are-new-mexico-bridges-safe/
https://www.krqe.com/news/larry-barker/behind-the-story-new-mexico-bridge-safety/
Public education is always at the top of the list for funding. However, public education is a reoccurring expenditure that must rely on continuing taxation. During her first term, Govern Lujan Grisham undertook to fully fund the state’s efforts to reform the State’s public education system and she was highly successful. Lujan Grisham succeeded in securing over $1 Billion dollars for public education during the 2019, 2020, 2021 and 2022 legislative sessions. In addition to the dramatic increases in public education funding, Lujan Grisham administration created the Early Childhood Department, issued mandates to the Children, Youth and Families and Public Education departments. An Early Childhood Trust Fund of $320 million was also created. The base pay for teachers has been increased by upwards of 20% and have risen to $50,000, $60,000 and $70,000 depending on the level of years of teacher experience.
Given the enormous amounts the state is now spending on education and what the state will be spending because of the enacted constitutional amendment, the $3.8 billion surplus would be better spent elsewhere and not on public education.
MAJOR CAPITAL OUTLAY PROJECTS SHOULD BE IN THE MIX
Whenever surpluses in state revenues occur, such as this year especially, Republicans always begin to salivate and proclaim all taxation is bad and that rebates and tax reform are desperately needed and the only way to go. The Republican tired and old political dogma has always been that tax revenues are the people’s money and anything in excess of what is actually needed over and above essential government services should be returned to the taxpayer. It is a short-sighted philosophy believing that only essential, basic services should be funded with taxpayer money such as public safety. If that were the case, there would be no public libraries, no museums, no zoos, no mass transit expansions and no memorial monuments. It appears that Governor Lujan Grisham has bought into the Republican political dogma.
It’s laughable or at the very least shows a level ignorance when Republican Senate Minority Leader Greg Baca says “Good governance starts with remembering that there is no such thing as extra money, only taxpayer money. … I believe those that earn that money are those best suited to spend it.” The truth is 62% of the general fund forecast growth in FY-23 is from severance taxes and federal royalty payments and not from personal income taxes as well as about two-thirds of the of the general fund growth forecasted in FY-24.
The reality is that most if not all of the major priorities being identified for the 2023 legislative session will require reoccurring funding and revenues from taxation. What all too often is totally ignored because lack of revenues are major capital outlay projects that are for the benefit of the general public and that improve the overall quality of life. Roads and water projects are such priorities, but are not exclusive.
Given the sure magnitude of the surplus, it is likely municipalities, citizens and interest groups will be asking for funding for special capital projects such as swimming pools, parks, recreation facilities, sport facilities, such soccer stadiums, and entertainment venues. The Governor and the legislature should listen and fund such projects while they can.
For the last two years, the New Mexico United soccer team has been trying to get taxpayer money to build a soccer stadium. In 2020, the soccer team was able to secure $4 million in state funds. In 2021, Albuquerque taxpayers were asked to support a bond to pay for the stadium, but it was rejected. With a $3.8 in surplus revenue, the legislature should consider fully funding the facility which will be about $16 million.
Other major capital outlay facilities and projects that has been discussed for decades is improving the New Mexico State Fair and all of its aging facilities. In particular, demolishing the 60-year-old Tingly Coliseum and building a multipurpose entertainment and sports facility with the capacity of upwards of 20,000 has been a dream of many a Governor, State Fair Commission and Fair Managers.
On February 25, 2019 it was reported that there is a need for such a facility and EXPO New Mexico was in the final stages of conducting a feasibility study on the construction of a new arena on the state fairgrounds. Tingley Coliseum has been around since 1957 with capacity for 11,000. Over the years it’s been remodeled and upgraded but it is still a state fair rodeo venue. The state and Albuquerque for decades has needed a large capacity, multipurpose entertainment venue of upwards of 20,000.
https://www.krqe.com/news/officials-want-to-build-new-arena-on-state-fairgrounds/
https://www.krqe.com/news/expo-new-mexico-looking-into-new-arena-to-replace-tingley-coliseum/
Indeed, the 2023 legislative session could very well turn out to be a “once in a century opportunity” to really solve many of the state’s problems that have plagued it for so many decades. It should also be viewed as an opportunity to build facilities that are needed and that will have a lasting impact on the state’s quality of life for decades to come.
The links to quoted news sources are here:
https://www.koat.com/article/new-mexico-government-billions-state-money/42259419