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No Easy Budget Fix

No Easy Budget Fix

There's only one thing that is certain about New Mexico's staggering budget crisis, complete with a looming $900 million shortfall for the current fiscal year, revenues that are in free fall and an outlook just as bleak for next year's budget: there are no easy solutions and it is going to take a long time for things to get better.

No Easy Budget Fix

BY DENNIS DOMRZALSKI

There’s only one thing that is certain about New Mexico’s staggering budget crisis, complete with a looming $900 million shortfall for the current fiscal year, revenues that are in free fall and an outlook just as bleak for next year’s budget: there are no easy solutions and it is going to take a long time for things to get better.

“There is no great idea out there to rectify that [budget crisis],” State Sen. John Arthur Smith said Thursday in announcing the massive shortfall. “Everybody wants an instant turnaround and that’s not going to happen. This is going to be a haul, digging out of this. We are not going to have a quick remedy of where we are at; we are just going to have to suck it up.”

Right now, Smith, his fellow legislators, and apparently even Gov. Susana Martinez, don’t know how they will deal with the crisis because no one knows when the bleeding of money will stop. “We still don’t know where the bottom is on our revenue,” Smith said. “I don’t know what we are going to do at this stage.”

There are two main causes of the crisis: falling oil and gas prices and the state’s economy. Oil and gas revenue account for about a third of all state general fund monies, and with prices below $30, the industry isn’t generating the kind of money for the state it did just 18 months ago. In fact, oil and gas revenues were down by $190 million through the first five months of the fiscal year, Smith said.

The state’s economy is the other culprit. It isn’t diversified and relies on two industries: the federal government and oil and gas. Federal spending has been stagnant or falling in recent years, especially military spending. And now, with oil and gas in the tank, things are bleak.

That lack of diversification means there aren’t many places the state can look to replace all that oil and gas money. The state’s manufacturing sector is puny and accounts for 3.3 percent of all jobs. And there aren’t many major corporations with huge revenue streams and profits here that can be taxed. At least 80 percent of the businesses in the state are considered small businesses with fewer than 50 employees.

In the third quarter of 2015, New Mexico state government collected $1.46 billion in taxes. Of that, $600.2 million came from the gross receipts tax and $360.7 million came from personal income taxes. Corporate income taxes accounted for $89.5 million of the state’s revenue that quarter, according to the U.S. Census Bureau.

“We don’t have many revenue streams to offset oil and gas revenues,” Smith said.

And while Smith has recommended to Martinez that she institute an immediate hiring freeze at the state level, it’s isn’t clear what Martinez will do to plug the deficit. A spokesman for the governor did not return messages from ABQ Free Press on what, if any, plan the governor had to deal with the budget crisis.

And exactly what Thursday’s bombshell news will have on various pieces of legislation in Santa Fe during the waning days of the 30-day session was unclear. There are a slew of get-tough-on-crime bills that have been approved by the House and are awaiting action in the Senate. Bernalillo County District Attorney Kari Brandenburg didn’t have much hope for the bills.

“I think that it’s disingenuous to propose tougher laws on the books without backing, having monetary resources to support those laws,” Brandenburg said. She added that law enforcement agencies across the state need more resources. “Courts and public defenders need resources in order for the criminal justice system to work efficiently and effectively,” Brandenburg said.

Smith said that one of his priorities is to prevent state workers from being laid off. During the state’s last budget crisis in 2009 at the height of the recession, the state imposed hiring freezes but didn’t have to lay off state workers, Smith said. But Carter Bundy, political action representative for the American Federation of State County and Municipal Employees in New Mexico, said he was worried about the situation.

“Any time the budget takes a hit, public employers are concerned,” Bundy said. “The thing we ought to focus on is the fact that we have been giving away hundreds of millions of dollars of corporate tax breaks. These tax breaks didn’t create new jobs, and they denied us [the state] money we need to provide core services and public safety.”

Veronica García, executive director, New Mexico Voices for Children, also pointed to corporate tax breaks as a reason for the budget crisis.  “This revenue free fall has hardly come out of the blue. We’ve been cutting taxes for well over a decade in the hopes that somehow jobs will materialize and we’ve created so many exceptions to our gross receipts tax that it’s got more holes than Swiss cheese,” Garcia said. “This one-sided approach to economic development has put us too much at the mercy of oil and gas revenues to pay the bills.”

Smith said the Senate will approve a budget for the fiscal year that begins on July 1st, but added that it will be bleak. The projected $30 million of so-called new money for that budget probably doesn’t exist, Smith said. In the meantime, the legislature and Martinez’s office will have to work together to erase the projected $900 million deficit for the current fiscal year. That could include cutting services, imposing a hiring freeze for state government, using unspent state monies and maybe tapping into the state’s tobacco permanent fund.

Smith also criticized people and groups he said are still in denial about the deficit. He said there are still people lined up in front of his office asking for additional money for their pet programs. “There are always a few who live on a different planet,” Smith said.

 

Dennis Domrzalski is an associate editor at ABQ Free Press. Reach him at dennis@freeabq.comJuani Hopwood (juani@freeabq.com) and Rene Thompson (rene@freeabq.com) also contributed to this story.

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Dennis Domrzalski is managing editor of ABQ Free Press. Reach him at dennis@freeabq.com.

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Johnny Vizcaino is an editorial intern at ABQ Free Press Weekly.

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