Lundstrom: Planning ahead
The numbers speak for themselves: the state is on track to make it to the end of this fiscal year with enough cash to pay its bills, and the Legislature sent the governor a balanced financial plan for next fiscal year that helps rebuild reserves.
To start with the fiscal year that ends June 30, the Legislature acted quickly at the beginning of the session to close the gap between projected spending and projected revenue. By sweeping some idle cash into the general fund, taking credit for cash balances in the school districts, and accelerating the accounting for insurance premium tax revenue, the Legislature closed the gap and added to the reserve. The latest Legislative Finance Committee revenue-tracking report estimates the general fund reserve will be at $95 million at the end of the year.
Although a reserve level equal to 1.5 percent of spending is risky and far below the more typical reserve level of 5 to 10 percent, the solvency action put New Mexico in a much better position than it was a year ago, when the executive’s failure to recognize the growing fiscal crisis meant the state ended the year in the red. In addition, while the delay of a $70 million federal oil lease payment has made budget experts legitimately nervous, the state could still end the year in the black without it, making calls for furloughs and shutdowns premature.
For the fiscal year July 1, the Legislature passed a budget and tax package that would keep next year’s spending essentially at current-year levels, which have been cut substantially to fit within collapsing revenues. Recognizing the state has not pulled out of its fiscal crisis, the legislative spending plan cuts or maintains much of state government to prioritize spending on education and job-creation efforts important to the executive. Importantly, the package rebuilds reserves to a much more breathable 3.5 percent. It’s a responsible plan that recognizes New Mexicans value our children and their education, the health and safety of our families and friends, and our environment and rich cultural heritage.
The tax half of the package would raise $350 million through the extension of the gross receipts tax to Internet sales, which would level the playing field for brick-and-mortar businesses in New Mexico; an expansion of the gross receipts tax on hospitals that hospitals support; a slight increase in the motor vehicle excise tax that car dealers support; and a two-year pause – not elimination – in the ongoing phase-in of lower corporate income tax rates.
Recognizing the governor’s opposition to tax increases but willingness to consider closing tax loopholes, the revenue bill was structured to give the governor the option to veto some provisions while leaving others intact. Without any additional revenue, spending for the next fiscal year would have to be cut by more than $100 million.
Since oil prices took a dive two and half years ago, projected state revenues have dropped by $800 million and spending has been slashed over and over. New Mexico has never been a state flush with money, despite a high-need population. We have high unemployment, high poverty, high crime, low educational attainment. We will never overcome these problems without an investment in our people, and we can’t invest in our future if we continue to cut.
Further, New Mexico cannot attract new businesses or help local businesses grow without a higher quality of life. Yes, business owners like low taxes but they also like good schools, skilled workers, and safe streets.
Finally, New Mexico’s tax structure is too heavily reliant on one industry – oil and gas. Every now and then, we are reminded of this structural problem and we vow to fix it. By expanding the gross receipts tax, the tax can be lowered, making it more fair and making this package the first step to badly needed tax reform.
Caution among state budget officials is to be expected after the last few years of uncertainty. But the New Mexico Legislature has planned effectively and, assuming stable if not strong economic conditions, New Mexico is on solid ground for this fiscal year and the next.
Rep. Patricia Lundstrom has served in the New Mexico Legislature representing McKinley and San Juan counties since January 2001. She is chair of the House Appropriations and Finance Committee and a senior member of the Legislative Finance Committee.