SANTA FE – New Mexico slashed estimates for revenue growth during the coming year by $200 million based on sustained low oil and natural gas prices, upending spending plans as New Mexico’s Legislature meets to craft a new budget.
Expectations for new revenues were revised downward to just $30 million for the fiscal year starting in July, the New Mexico Department of Finance and Administration announced Wednesday. Economists from three executive agencies and the Legislature agreed to the new estimate.
“Crude oil and natural gas prices have fallen dramatically, with serious implications for general fund revenues,” Finance Secretary Thomas Clifford wrote.
The new revenue estimates are forcing lawmakers and Gov. Susana Martinez back to the drawing board to rewrite a $6.5 billion budget plan that had called for a $230 million increase in spending.
New Mexico is facing surging costs for health care coverage among the state’s poor covered under Medicaid, even as the governor has called for increased spending on law enforcement, education and economic development initiatives.
The revenue outlook for the current budget year also was revised down by $145 million, meaning the state will likely have to dip into its spending reserves to make ends meet. General fund reserves are expected to fall to less than 8 percent by midyear, down from 10 percent the previous year.
Sen. John Arthur Smith, D-Deming, said the new revenue estimate deflates the governor’s wish list, including proposals for tougher criminal sentencing provisions that could drive up court and corrections costs.
The chairman of the influential Legislative Finance Committee said that meeting the state’s Medicaid obligations alone may require scouring state agencies for idle cash balances to come up with at least $50 million. And lawmakers still need to be mindful that oil and natural gas prices could continue to fall.
“The downside risk is still high,” he said.
Plans for $77 million in pay increases, mainly for teachers, are likely to be put on hold, according to Democratic Senate President Mary Kay Papen. Martinez also has sought pay increases for police, prison guards and child abuse caseworkers.
“I don’t know how that we would have the money to do that,” Papen from Las Cruces said.
The Republican-led House of Representatives will seek to contain Medicaid costs, hold on to spending increases for law enforcement and tap money from the state’s tobacco settlement fund, said Rep. Larry Larranaga, R-Albuquerque.
State economists already had reduced revenue expectations by $62 million in December, as energy prices slumped.
Then the price of U.S. crude sank to almost $27 a barrel last week, its lowest since 2003 amid a glut in global oil supplies, and a far cry from prices of over $100 in mid-2014.
New Mexico expects oil prices to rise, but not by much. It pegged revenue estimates to average oil prices of about $38 a barrel through mid-2017, down from previous estimates in the $49 range.
Low retail gas prices have left more money in the pockets of New Mexico consumers, but tax collections on sales have lagged behind expectations since last summer.
New Mexico also will have roughly $20 million less to spend on infrastructure from bonds underwritten by severance taxes linked to oil and natural gas production.