The 2025 New Mexico legislative session is a 60-day session. It begins January 21 and ends on March 22, 2025. During the session the legislature will approve the state’s Fiscal Year 26 (FY26) budget for the time period of July 1, 2025 to June 30, 2026.
On December 13, Governor Michelle Lujan Grisham released her proposed budget for Fiscal Year 26. The budget release comes more than a month before the Jan. 21 start of the New Mexico Legislature.
According to the Governor’s office, the proposed budget builds on her first 6 years in office while boosting investments in health care, child well-being and infrastructure across New Mexico. The budget recommendation includes $10.9 billion in recurring spending which is an increase of 5.3% over current year spending. The budget contains an additional $172 million for state employee pay raises, which includes additional compensation for New Mexico educators. The executive recommendation maintains reserves at 30.4%.
STATEMENT FROM GOVERNOR LUJAN GRISHAM
Governor Lujan Grisham issued the following statement upon release of her FY26 budget:
“This fiscally sound budget proposal prioritizes early childhood education, clean energy, infrastructure, affordable housing, and expanded healthcare access to build a stronger foundation for New Mexicans. … My administration looks forward to discussing these proposals with state lawmakers and reaching consensus on the priorities that matter most to our state. … Our early release of the executive budget ensures everyone has time to review our priorities for New Mexico.”
HOUSE REPUBLICANS ISSUE STATEMENT
New Mexico House Republicans issued the following statement upon release of the Governor’s FY26 budget:
“A President once said, “Don’t tell me what you value, show me your budget, and I’ll tell you what you value.” We have looked at the governor’s proposed budget and she clearly values recklessly spending New Mexicans’ hard-earned money, asking for billions more each year. As the state government spends more of your money this year, think about whether you have seen improvements in the things we all value over the last six years. Are your streets safer? Are your kids better educated? Are there more job opportunities available to you? As House Republicans, we value responsible spending that keeps more money in the pockets of every New Mexican.”
The link to quoted news source is here:
https://www.koat.com/article/new-mexico-state-budget-proposal-2025/63184851
BUDGET RELEASED EARLY
The governor’s budget plan is usually unveiled in early January, just before the start of the legislative session. Finance and Administration Secretary Wayne Propst said the decision was made to release the proposed budget earlier this year “in the interest of transparency and to give time for public input … there’s no reason to wait until a week before the session.”
State Representative Nathan Small (D) said he welcomed the release of the governor’s budget proposal early. Small said this:
“I welcome the governor, the executive releasing the budget. The legislative finance committee spends a year going around the state building the legislature’s proposal. The fact that we’re close on some things at a top line level is positive. That said, the details matter so much.”
“Details mean whether or not a new Mexican gets health care coverage, whether or not a New Mexican kiddo has a good classroom to learn and go to school and whether they get food. Frankly, the details matter when it comes to making sure that public safety is increased.”
“We have the law enforcement officers we need, and we also can cut through and build the housing that we so desperately need. So, that’s what I’m really excited about is digging into the details, doing the work that the people of New Mexico deserve and most importantly, listening to the people of New Mexico, which is the process of the legislature.”
Lujan Grisham’s budget recommendation includes $3.33 billion in reserves or 30.4%, through FY26 while the State has $10.9 billion in recurring spending.
The Governor’s proposed budget includes the following major line items:
- $4.56 billion for the Public Education Department
- $2.2 billion for the Health Care Authority
- $1.4 billion for the Higher Education Department
- $365 million for the Early Childhood Education and Care Department
- $352 for the Department of Corrections
- $286 million for Children, Youth and Families Department
- $268 million for courts
- $211 million for the Department of Health
- $196 million for the Department of Public Safety
- $81 million for the Public Defender’s office
- $41.5 million for the State Engineer’s Office
- $26.3 million for the Tourism Department
- $13.5 million for the Workforce Solutions Department
The budget proposal includes $172 million for state employee pay raises. These raises are included for educators also.
BREAKDWON AND ANALYSIS OF PROPOSED BUDGET
Governor Lujan Grisham’s propose budget contains large line item spending for New Mexico road construction, homelessness, child care, drug addiction and mental health programs and the state’s long-term water supply under her $10.9 billion spending plan. The budget proposal increases overall state spending by upwards of $720 million, or 7%, over current levels for the fiscal year running from July1, 2025 through June 30, 2026.
STATE EMPLOYEE PAY INCREASES
The proposed budget provides for pay raises for state employees and public-school workers. Pay increases totaling $172 million for state government and public-school employees are built into the budget proposal. Teachers and other education employees would get 3% raises. Increases for other state workers will be targeted at specific employee classification levels within state government.
SPENDING ON HOMELESS INITIATIVES
Homelessness would be a spending priority under the governor’s budget plan. The budget plan contains $50 million that could be used on rental assistance and expanding shelters for homeless individuals amid a statewide housing shortage.
SPENDING INCREASES FOR EDUCATION, CHILD CARE
Public school spending currently makes up about 44% of the state’s budget. The governor’s plan would increase education spending despite a statewide enrollment drop. The increase in spending would include more money for a state-subsidized universal school meals program and funding to expand a summer reading initiative.
Under the governor’s plan, general fund spending on K-12 public education would increase 3% to $4.6 billion. Public schools are confronting new financial demands as they extend school calendars in efforts to improve academic performance, even as enrollment drops. The budget plan would shore up funding for free school meals and literacy initiatives including tutoring and summer reading programs.
While state spending has increased, lawmakers have also set aside millions of dollars from the revenue windfall in trust funds. The money in those funds is then invested for future use. An early childhood trust fund established with a $300 million appropriation in 2020, for instance, has ballooned to a projected $9.6 billion balance in the current fiscal year.
A proposed $206 million spending increase on early childhood education aims to expand participation in preschool and childcare at little or no cost to most families, especially those with children ages 3 and under. The increased spending comes not only from the state general fund but also a recently established, multibillion-dollar trust for early education and increased distributions from the Land Grant Permanent Fund, endowments built on oil industry income.
In addition, the budget plan would earmark $98 million to expand a childcare program for an additional 5,100 children. A separate appropriation would increase minimum pay levels for early childhood workers from $15 to $18 per hour. Similar pay stipends had previously been funded using federal pandemic funds.
In 2018, a Santa Fe District Court ruled in the case of Yazzie v. State of New Mexico and Governor Suzanna Martinez that the state of New Mexico was violating the constitutional rights of at-risk students by failing to provide them with a sufficient education. As the state struggles to comply with the landmark 2018 court ruling, the governor’s spending plan calls for $150 million to be funneled into a Native American education fund over the next three years. The governor’s spending plan would funnel more than $90 million to Native American communities to shore up autonomous educational programs that can include indigenous language preservation.
FUNDING FOR HOSPITALS AND BEHAVIORIAL HEALTH
The governor’s spending plan will allocate more money to several existing funds, including $50 million for a rural hospital fund and $110 million for a matching fund that provides money for state agencies, cities, counties and tribal governments to leverage against federal dollars.
It also calls for $100 million to be spent on expanded behavior health care programs, which could include new mental health and substance abuse facilities. That money could be set aside in a new trust fund or spent directly.
Leading Democratic legislators are proposing the creation of a $1 billion trust to underwrite future spending on addiction and mental health treatment in efforts to rein in crime and homelessness. Companion legislation might compel some people to receive treatment.
Rep. Nathan Small, D-Las Cruces, the chairman of a House budget-writing committee, said lawmakers are also eying “very significant” investments in behavioral health programs.
BROADBAND INTERNET ACCESS
Lujan Grisham is requesting $70 million to quickly connect households and businesses in remote rural areas to the internet by satellite service, given a gradual build-out of the state’s fiberoptic lines for high-speed internet. The program would rely on Elon Musk’s satellite-based internet service provider Starlink.
ONE TIME SPENDING INITIATIVES DEALING WITH WATER SCARCITY
The governor’s budget proposes $2.3 billion in one-time spending initiatives, including $200 million to address water scarcity. Additionally, Lujan Grisham is seeking $75 million to underwrite ventures aimed at purifying and recycling enormous volumes of salty, polluted water from oil and natural gas production. A companion legislative proposal would levy a per-barrel fee on polluted water. Cabinet secretaries say the future of the state’s economy is at stake in searching for water-treatment solutions, while environmentalists have been wary or critical.
TAX CUTS OR REBATES STILL POSSIBLE
In recent years, the Governor has advocated, and the legislature has enacted several rounds of tax rebates amid ongoing revenue booms, including $500 per taxpayer rebates that were sent out in the summer of 2023. The Governor’s FY26 budget plan does not call specifically for tax cuts or rebates but they can still be considered during the upcoming 60-day legislative session.
Senator George Muñoz, D-Gallup, the chairman of the Legislative Finance Committee (LFC), said during budget hearings on December 9 the past rebates were “pretty much a waste of money.” Muñoz said the state could have better put the money to use by funneling the surplus funding into trust funds to be invested for future use.
The link to review the Governor’s Executive Budget Summary is here:
https://www.nmdfa.state.nm.us/wp-content/uploads/2024/12/Executive-Budget-FY26-Digital-1.pdf
The links to a relied upon or quoted new sources are here:
https://www.koat.com/article/new-mexico-state-budget-proposal-2025/63184851
https://www.koat.com/article/new-mexico-state-budget-proposal-2025/63184851
https://citydesk.org/2024/nm-legislature-will-see-increased-spending-money-for-upcoming-session/
ESTIMATED $892.3 MILLION IN “NEW MONEY” PROJECTED FOR STATE
On December 9, the Legislative Finance Committee (LFC) held one of its last regularly scheduled meetings before the 2025 legislative session that begins on January 21, 2025. The LFC is made up of legislators from each chamber in budget-writing committees. Senate Finance Committee chairman Sen. George Muñoz, D-Gallup, chairs the LFC. House Appropriations and Finance Committee chairman Nathan Small, D-Las Cruces, serves as vice chair.
The revenue estimates released will be used as a roadmap as lawmakers begin drafting a budget for the fiscal year that starts in July 2025. The budget surplus is part of a multi-year revenue bonanza, fueled primarily by record-high oil and natural gas productions in southeast New Mexico’s Permian Basin. New Mexico is the second-largest oil producer in the nation, behind only Texas, and oil and gas revenue make up about 35% of the state’s total revenue collections, according to legislative data. The two southeast New Mexico counties of Eddy and Lea make up one-third of the state’s gross receipts tax revenue, despite making up only about 6.3% of the state’s population.
New revenue estimates released by LFC financial analysts are projecting that legislators will have $892.3 million in “new money” available next year. The “new money” projection figure represents the difference between projected revenue and current total spending levels. The $892.3 million figure is upwards of $233 million more than was projected in August of this year. In all, the nearly $13.6 billion in projected revenue for the coming budget year is roughly $3.4 billion more than the state’s $10.2 billion budget.
While state spending has increased, lawmakers have also set aside millions of dollars from the revenue windfall in trust funds. The money in those funds is then invested for future use. An early childhood trust fund established with a $300 million appropriation in 2020 has ballooned to a projected $9.6 billion balance in the current fiscal year.
The state’s reliance on oil-generated dollars has been tempered in large part by lawmakers funneling much of the revenue bonanza into trust funds. That funding is then invested for future use. The investment earnings are set to surpass personal income taxes as the state’s second-largest revenue source this year.
Referring to the state’s revenue surplus Finance and Administration Secretary Wayne Propst said this about the projections:
“The good news is there’s no bad news in this revenue forecast. … We haven’t spent it all! In fact, we’ve set aside a significant part of that for future needs.”
“We’re blessed in New Mexico that we continue to see recurring revenue growth, but we also recognize that that revenue growth is slowing a little bit. So, I think this budget not only reflects the priorities of the governor but reflects the priorities of most New Mexicans.”
“We also understand, as you noted, that there are behavioral health challenges across the state, continuing challenges with crime in some areas. So, the focus really will be on those key areas of infrastructure, early childhood development, but continuing to make investments also in economic development and protecting our natural resources.”
WHAT SURPLUS WILL ALLOW
The unprecedented revenue windfall will allow legislators to set aside a large amount of money to expand behavioral health programs in New Mexico, among other initiatives, during the 60-day session that starts next month. It could also allow for additional tax breaks to be enacted, though leading lawmakers said they would look to offset the impact of any tax changes.
TRUMP POLICIES COULD IMPACT NM’S BUDGET
During the December 9 LFC meeting, LFC Chief Economist Ismael Torres pointed out that potential federal policy changes under the administration of President-elect Donald Trump could impact the state’s finances. Specifically, he said federal interest rate changes, tax cuts and tariffs all could affect the state budget. Torres told lawmakers this:
“We are very dependent on federal policies. … Pullbacks in federal spending could be a significant sticking point for state revenues.”
According to state Department of Finance and Administration and Taxation and Revenue Department data, another potential downside risk to the revenue forecast unveiled is Trump’s immigration policies. Trump campaigned heavily and is vowing to implement a “mass deportation” initiative that economists have said could harm New Mexico’s construction and agriculture industries, among others.
But the revenue figures could also end up being even higher than projected, as increase in wage growth and federal defense spending could prompt greater inflows into the state’s coffers.
Aides to Governor Lujan Grisham said they are watching warily for any possible funding disruptions as President-elect Donald Trump prepares to take office on January 20. New Mexico depends heavily on the federal government to support Medicaid and nutritional subsidies for households living in poverty or on the cusp, as well as for education funding, environmental regulation and an array of other programs. The Governor’s Chief of Staff Daniel Schlegel said this:
“It’s not lost on us that President Trump will be inaugurated the day before the [2925 legislative] session starts.”
HISTORY OF SURGING RFEVENUES
New Mexico revenue levels have surged to record-high levels in recent years amid an ongoing oil drilling boom. The state’s record-high levels of revenue for the past 10 years is as follows:
- 2017 — $6.5 billion
- 2018 — $6.9 billion
- 2019 — $7.8 billion
- 2020 — $8.2 billion
- 2021 — $8 billion
- 2022 — $8.8 billion
- 2023 — $10.9 billion
- 2024 — $13.2 billion
- 2025 — $13.3 billion
- 2026 — $13.6 billion
COMMENTARY AND ANALYSIS
As has been the case for the last 3 legislative sessions, the upcoming 2025 New Mexico legislative session will be 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 should all be topics of discussion during the upcoming 2025 legislative session. All merit serious consideration and funding with the historic surplus.
NOT PUBLIC EDUCATION THIS TIME
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, Republicans and fiscal conservatives always begin to salivate and proclaim all taxation is bad and that rebates and tax reform are desperately needed and the only way to spend the surpluses. 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.
What all too often is totally ignored because lack of revenues are major capital outlay projects that are for the benefit of the 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 and entertainment venues. The Governor and the legislature should listen and fund such projects while they can.
On December 3, Gov. Michelle Lujan Grisham and state officials held a news conference at Expo New Mexico to announce that the state intends to find and move the NM State Fair grounds known as Expo New Mexico to a new location. The announcement included the release of a Request For Proposal (RFP) that is now being sent out by the State Fair Commission to bring the ambitious endeavor to fruition. Available funding to renovate aging state fair facilities or moving the state fair has always been a major impediment. However, that has changed.
On Monday, December 9, the Legislative Finance Committee (LFC) reported that new revenue estimate numbers for the state predict legislators will have $892.3 million in “new money” available for next year. The $892.3 million projection is upwards of $233 million more than was projected in August. According to Legislative Finance Committee data, the improved outlook of increased revenue is due to slowing inflation and an easing interest rate environment.
Part of the redevelopment of the existing Expo New Mexico property would be the building of a new, modern arena to replace Tingly Coliseum that would support year-round large scale concerts and events. This has long been a dream of many elected officials. It’s a capital improvement project that should go forward regardless of what happens to moving Expo New Mexico. With the continuing State revenue surpluses, the building of a multipurpose state-of-the-art arena to replace Tingly Coliseum would be an investment for future generations.
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 to enhance quality of life and that will have a lasting impact on the state’s quality of life for decades to come.
Links to additional relied upon or quoted news sources: