SANTA FE UPDATE

State will have record $12 billion in revenues when legislature convenes Jan. 17

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When they convene Jan. 17 in Santa Fe for a 60-day session, New Mexico legislators will likely consider a state budget of almost $12 billion for the coming fiscal year, almost 43 percent more than this year.

“We’re seeing the most revenue we’ve ever seen,” said state Rep. Nathan Small, D-Doña Ana, who is

vice chair of the New Mexico House Appropriations and Finance Committee and a member of the state Legislative Finance Committee (LFC).

“We’ve achieved some very big things and made some very profound changes in this state that should turn around some of the bad statistics,” said state Sen. Jeff Steinborn, D-Doña Ana, who is also a member of the LFC, and of the Senate Finance Committee (SFC).

The LFC released a general fund revenue estimate in December that shows current budget year (FY23) estimated revenues of $10.78 billion, up $928 million from the August estimate. Recurring revenues for FY22 were $9.675 billion, up $1.59 billion (19.7 percent) from FY21, the LFC said. FY24 begins July 1.

Oil and gas revenues – “supported by global supply-side constraints raising prices and encouraging production expansion” – are part of the budget increase, the LFC said in the December analysis, along with “sustained high inflation,” strong consumer spending and wage growth.

More than 60 percent of the growth forecast for the state’s FY23 general fund and about two-thirds of what is projected for FY 24 are from record severance taxes and federal royalty payments driven by oil and gas production, the analysis showed.

“As a recession begins in many parts of the world, expectations for global oil demand have fallen, bringing energy prices with it,” the LFC said. “Despite the lower prices, energy companies in New Mexico have continued to drill at production expanding rates, as well as increasing the productivity per well, breaking production records each month. Although falling prices would generally reduce tax revenues, production levels are more than offsetting price declines.

“New Mexico’s oil prices averaged $88.11 a barrel (42 U.S. gallons) in FY22 and have averaged $93.43 a barrel in the first quarter of FY23 (the current fiscal year),” the LFC said. “Prices have fallen in the second quarter of FY23 with market expectations for prices of $73-$80 a barrel through FY24.”

(Crude oil prices briefly traded below $0 in the spring of 2020. The legislature met in special session that April to cut state spending and “take up measures of economic relief,” Gov. Michelle Lujan Grisham said in a news release.)  

The state’s early childhood education trust fund is expected to grow substantially in 2023 because of the revenue surplus, the LFC said.

The fund, created in 2020, has a current balance of about $314 million. That likely will increase to almost $2.1 billion this fiscal year, the LFC said, to nearly $5.4 billion in FY24 and to almost $10 billion by FY27.

“Maintaining high reserves while creating and investing in trusts better prepares the state for rainy days," said state Sen. Crystal Diamond, R-Sierra, Luna, Hidalgo, Doña Ana. who lives on a ranch near Elephant Butte and is a member of the LFC and SFC.

“Our first priority should be investing the (state’s budget) surplus in the funds that will permanently address New Mexico’s needs rather than just spending the money in a boom year, then tightening the belt in a lean year,” said state Sen. Joseph Cervantes, D-Doña Ana.

“We shouldn’t continue to operate like a roller coaster,” said Cervantes, a Las Cruces attorney who is chair of the Senate Judiciary Committee and has 22 years’ combined service in the Senate (since 2013) and House (2001-12). “We’re going to have to resist is the urge to go out and spend it all today.”

“The highest return and benefit to the state’s future revenue stability is through increased distributions or one-time payments into the state’s permanent funds which already outpace other general fund revenue sources and reduces New Mexicans’ tax liability,” the LFC said. “Analysis by LFC and the State Investment Council suggests distributing above budget oil and gas related revenues to the permanent funds would fully eliminate the out-year budget deficit, despite a downturn in oil and gas revenues.”

Capital outlay

During the 2023 session, legislators are again expected to receive millions in capital outlay funds for projects in their home districts. In 2022, the governor received $160 million in capital outlay, each senator received $3.1 million and each House member received $1.86 million. More than $823 million was proposed for capital projects statewide during the 2022 session. Lujan Grisham vetoed 34

Many southwest New Mexico legislators said capital outlay priorities for 2023 will be local infrastructure needs, including water and sewer projects, dams, roads, streetlighting, sidewalks and parks.