The 2025 New Mexico legislative session begins January 21 and ends on March 22, 2025. It is referred to as the 60-day long session where legislators are free to introduce what they want unlike 30 day sessions which are limited to what the Governor places on the agenda. The session will begin at noon at the capital starting with the Governor’s “State of the State” Address. Lawmakers were already busy Monday, January 20, hearing final pre-session budget reports.
As of January 20, more than 200 bills had already been filed with 125 filed in the House and 78 filed in the Senate. Hundreds more proposals are expected to be filed before the February 20 deadline to introduce legislation. In addition to returning lawmakers, a total of 29 new legislators will take the oath of office after winning election last year. In all, the new lawmakers will make up roughly 26% of the Legislature. Without a doubt they will inject new ideas into debates on public safety, education, environment and mental health treatment.
House Speaker Javier Martínez, D-Albuquerque, said he expects issues around criminal competency and behavioral health to move quickly during the first few weeks of this year’s session. New Mexico House leadership have already announced a very aggressive agenda for the 2025 session. (See postscript below for related article.)
The biggest agenda item for the legislature will be the approval of the 2025-2026 State Government budget. This article is an in-depth report on the proposed budget.
GOVERNOR MLG’s PROPOSED BUDGET
On December 13, 2024, Governor Michelle Lujan Grisham released her proposed budget for Fiscal Year 2025-2026 more than a month before the January 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 governor’s plan calls for a 7% budget increase for the coming year.
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%.
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 Governor’s budget proposal includes $172 million for state employee pay raises and raises for teachers.
LFC RELEASES PROPOSED BUDGET
On January 15, the Legislative Finance Committee (LFC) released its proposed budget recommendation for the 2025-2026 fiscal year to compete with Governor Michelle Lujan Grisham’s proposed budget. It calls for spending $10.8 billion from the state’s general fund, a 5.7%, or $577 million, increase over FY25 planned spending.
The LFC overall proposed budget is slightly less than the plan released last month by Governor Michelle Lujan Grisham. The governor’s plan calls for a total budget of $10.9 billion in recurring spending. The LFC’s competing budget is $10.8 billion and would increase spending by $568.5 million, or 5.7%, over current levels.
Both the Governor’s proposed budget and the LFC proposed budget would provide pay increases for state employees and public school workers, though the raises would be slightly larger under the Legislative Finance Committee’s plan.
State agencies requested $11.2 billion from the general fund for recurring spending. The LFC general fund recommendation for FY26 is $10.8 billion, up $577 million, or 5.6 percent, from FY25 appropriations and includes a 4% compensation package for public schools, higher education, and state agencies. The LFC recommendation also includes significant one-time investments in special appropriations, supplementals, deficiencies, fund transfers and multi-year investments.
LFC LINE ITEM APPROPRIATIONS
Major line item appropriations included in the LFC’s $10.8 billion operating budget for state agencies include the following line items:
- $4.69 billion, a $263 million or 6% increase, for Public Education. This includes $343 million in nonrecurring, education-related appropriations, including a $150 million transfer to the public education reform fund, to evaluate promising education initiatives over a period of three years.
- $36.3 million, a 3% increase, for higher education institutions and the Higher Education Department, bringing total general fund appropriations to $1.4 billion.
- $210.9 million general fund recommendation for the Department of Health representing a 4.9% percent increase in the general fund appropriation.
- $29.6 million for the Economic Development Department which includes an increase of $706 thousand from the general fund for additional staffing for the Office of Strategy, Science, and Technology.
- $198.3 million for the Environment Department, a $670.8 thousand, or 2%, decrease in funding.
- $226.6 million for the Energy, Minerals and Natural Resources Department.
- $18.7 million, or 5.4% increase, for the Early Childhood Education and Care Department. This includes $3 million for rate increases for providers in the Home Visiting new family supports program, $3.5 million for prekindergarten quality support, $10 million for prekindergarten expansion, and $2 million for tribal language support.
- $389.4 million for the Children Youth and Families Department.
- $191.8 million from the general fund for Public Safety, a 3.6 percent increase, for a total budget of $228.3 million across all funding sources.
- $81.9 million for the Administrative Office of the Courts (AOC), an increase of $8.8 million, or 17% increase.
- $210.9 million general fund for the Department of Health representing a 4.9% increase in the general fund appropriation.
- $134 million in additional general fund revenue for compensation increases for state and higher education employees. Under the LFC proposed budget plan, state employees would get an average 4 percent increase
- $50 million for regional recreation centers and quality of life grants.
- $350 million from the general fund for transportation projects and equipment, with $188 million for road projects at NMDOT, $100 million for local and tribal governments through the transportation project fund, and $50 million for the department’s wildlife corridor fund.
- $1.7 billion in transfers to endowments and other funds. The transfers include $600 million for the government results and opportunity, or the GRO fund, that pays for three-year demonstration projects.
- $150 million for a new fund for public education reform pilot projects.
- $222 million for the water project fund.
- $855 million for state special projects. (See below)
- $15 billion for Health Care Authority is a $2.8 billion, or a 23% increase.
The proposed LFC budget also includes appropriations for the massive Health and Human Services Health Care Authority. $15 billion is included in the LFC proposed budget for the Health Care Authority which includes is a $2.8 billion, or 23, increase above the FY25 operating budget
MAJOR STATE AGENCY SPECIAL PROJECTS
The LFC proposed budget includes funding for the following major state agency projects:
- $40 million for a new forensic unit at the Behavioral Health Institute in Las Vegas.
- $40 million for restoration and improvement of state parks.
- $20 million for public safety radio communication infrastructure statewide.
- $10 million for watershed restoration and community wildfire protection projects.
- $10 million for local emergency capital projects statewide.
- $10 million for a new patrol helicopter for the New Mexico State Police.
- $8 million for a new wildfire response program facility for the Forestry Division of the Energy, Minerals and Natural Resources Department.
- $50 million distribution from the public school capital outlay fund to school districts for school security, career and technical education facilities, and general maintenance.
- $24 million appropriation to the Department of Finance and Administration for project completion grants for existing local capital outlay projects.
- $40 million for a new humanities and social science complex.
- $25 million for renovations to the College of Pharmacy at the University of New Mexico;
- $10 million for demolition of Cole Village and $4.5 million to complete an expansion of the new biomedical building at New Mexico State University.
- $18.5 million in appropriations to address critical infrastructure deficiencies at New Mexico Highlands University, the New Mexico Institute of Mining and Technology, Eastern New Mexico University, and New Mexico State University.
UNSPENT CAPITAL OUTLAY
Capital Outlay and Infrastructure Capital outlay requests from state agencies, judicial entities, higher education institutions, and special schools totaled roughly $1.7 billion. Despite historic revenues, the state continues to face challenges to completing projects, including capacity limitations, rising construction costs, and insufficient planning and coordination of funding sources. At the end of the first quarter of FY25, outstanding capital balances totaled an estimated $5.8 billion across more than 5,000 projects.
RESERVES AND OTHER FUNDING
Under the LFC’s spending plan, reserves would be 33% of planned spending, a level that will ensure the state is protected in case of an economic downturn. About 45% of the $577 million increase in recurring general fund spending, or $263 million, would go to public education with most of that designated for the formula-based state equalization guarantee distribution to school districts and charter schools.
The 6% increase in the appropriation to the state equalization guarantee is primarily due to a 4% increase in school personnel salaries and a $56 million appropriation to more equitably allocate formula funds to schools serving lower-income students.
The LFC’s proposed budget includes a one-time $150 million transfer to a proposed public education reform fund to evaluate promising education initiatives over three years and an additional $193 million for other nonrecurring education-related appropriations. The Higher Education Department and the state’s colleges and universities would get $36 million more in FY26 over FY25, or almost 3%. The increase includes an additional $21 million for funding distributed to schools through a formula, $3 million for mental health and other student support services, and $2 million for pay raises at the Health Sciences Center.
Another $79 million of the recurring general fund increase is designated for the Health Care Authority, mostly for the Medicaid program. The total budget for the Health Care Authority, substantially supported with federal Medicaid funds, would increase by 23.3 percent from $12.2 billion to $15 billion, in large part through the creation of a hospital surcharge fund that pools payments from hospitals, matches them with federal dollars, and redistributes them to the hospitals through a formula.
The LFC’s proposed budget continues increases in rates to Medicaid providers of physical healthcare and maternal and child healthcare. The LFC budget also included significant amounts in nonrecurring funding to help ease the transition from prison for inmates and provide medical respite for unhoused people. The Medicaid budget doubled between FY19 and FY25, and the committee recommendation emphasizes improving performance with language to strengthen hospital and behavioral health oversight.
The LFC is recommending a small increase in general fund spending in the Early Childhood Education and Care Department, but with revenue from the early childhood trust fund, total funding for the department is a 5.4% increase over FY25. The total recommendation includes funding for rate increases for providers in the Home Visiting family supports program and the Family, Infants, Toddlers program; childcare and prekindergarten quality improvements and expansion; and a new doula certification program.
TEACHER PAY INCREASES MAJOR LFC PRIORITY
New Mexico lags behind the rest of the nation in when it comes to teachers pay. The LFC proposed budget would increase starting teacher pay for the second time in three years.
Under the LFC proposed budget, New Mexico would boost starting teacher pay to $55,000 per year and increase spending on mental health and drug addiction treatment programs under the $10.8 billion spending plan.
The LFC budget plan would also increase the minimum pay rates for more experienced educators under the state’s three-tiered licensure system. According to National Education Association data, if the teacher raised are approved, it would place New Mexico starting teacher pay at significantly higher than the national average of $44,530 per year.
In addition to raising minimum starting teacher pay from $50,000 to $55,000 per year, the legislative plan would also provide average 4% pay raises for all educators and state workers. It would also largely cover the cost of rising health insurance premiums.
REVENUE SURPLUS USED FOR TRUST FUNDS
New Mexico state spending has grown by 45% since Lujan Grisham took office in 2019, as revenue collections have reached historical record-high levels. Estimates released last month predicted legislators will have $892.3 million in “new” money available next year. The figure represents the difference between projected revenue and current total spending levels. The budget surplus is part of a multi-year revenue bonanza, fueled primarily by record-high oil and natural gas production in southeast New Mexico’s Permian Basin.
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. The Legislative Finance Committee’s budget plan would continue that approach, as it calls for $222 million to be transferred to a water project fund and $350 million for a new community benefit fund for local infrastructure projects.
While the spending plan does not specifically endorse the creation of a new trust fund to pay for expanded mental health and substance abuse treatment, it does include nearly $200 million in additional state spending for such programs. Senate Majority Leader Peter Wirth said legislation will be filed in the Senate to create a new fund for such programs, with the goal of securing $1 billion to expand treatment options statewide.
KEY DIFFERENCES
There are some key differences between the two proposed budgets. The LFC plan does not include funding for a $75 million strategic water supply proposed by the governor for buying brackish and produced water. The LFC budget would appropriate $350 million for road repairs and other transportation projects, compared to $300 million under the governor’s plan.
REACTION TO DUELING BUDGETS
Senate Majority Leader Peter Wirth, D-Santa Fe, said the dueling budget plans align in many policy areas. Wirth said this:
“We’re not that far apart and that’s a really good thing going into the session.”
LFC Chairman Sen. George Muñoz, D-Gallup described the legislative spending plan as “prudent”, saying spending growth of larger than 6% annually could lead to future budget woes. Muñoz said this:
“Fiscal restraint has been critical to our successful efforts to transform the revenue boom of the last few years into long-term support for state services. …The committee’s recommendation supports the committee’s interim focus on improving earned per capita income, healthcare access, and quality of life at the same time it continues the approaches we have pursued over the last few years to extend the life of these fiscally strong years. … New Mexico is in the best financial situation it’s ever been in in its history”
The Governor’s Finance and Administration Secretary Wayne Propst said the two spending plans appear to feature more similarities than differences. Propst said this:
“Where differences exist, we look forward to working through them with the appropriating committees. … These next 60 days will test our collective resolve to resist unnecessary spending and stay focused on building a strong and stable financial future for New Mexico.”
The links to the relied upon and quoted news sources are here:
Click to access fy26%20press%20packet.pdf
https://www.kob.com/new-mexico/lfc-releases-budget-recommendations-for-2025-2026-fiscal-year/
ESTIMATED $892.3 MILLION IN “NEW MONEY” PROJECTED FOR STATE
It was On December 9, 2024 that 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.
HISTORY OF SURGING REVENUES
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
Both the Governor’s proposed budget and the LFC’s budget will now be debated during the 2025 legislative session where both will got through the committee conference system. A compromise between the two budgets will be hammered out in conference committee. Both budgets can be considered reasonable and a consensus should be arrived at quickly given the closeness in amounts of the budgets. With that said, it is disappointing that both budgets are somewhat limited as to what should be done with the historic revenue surplus other than placing the surplus in trust accounts.
The 2025 New Mexico legislative session will again be hot and heavy on how to spend the historic surpluses, and revenue surplus should be spent on major capital improvement projects that can go a long way to improving the quality of life for all citizens. There is 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.
Whenever surpluses in state revenues occur, 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 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 will 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. The legislature once again has the opportunity to invest in one time transformative projects to improve the state’s overall quality of life for its citizens.
POSTSCRIPT