By The Albuquerque Chamber of Commerce
STATE BUDGET ON LIFE SUPPORT
As everyone knows by now, the state budget is hemorrhaging red ink because tax revenues have plummeted. Nose diving oil prices have forced production shutdowns and economic activity throughout the state is anemic, at best. There is great uncertainty about how fast the state’s economy can rebound from the depths of the current recession. Consequently, the Governor has called the Legislature into special session, which gets underway on Thursday, June 18 – preceded by key committee meetings on the 17th.
For the current FY 20 budget year, which ends on June 30, revenue will be some $439 million less than projected back in December 2019. The outlook for FY 21, which begins July 1, shows revenues down nearly $2 BILLION from last year’s estimate. As the Legislative Finance Committee (LFC) Special Session Update memorandum stated, “The state was pretty well positioned to withstand severe economic and financial stress with expected FY 20 general fund reserves at 26.7 percent. However, in hindsight, 7.5 percent general fund appropriations growth for FY 21 was excessive [emphasis added].” Total reserves are about $1.8 billion, but the shortfall between the two fiscal years is close to $2.5 billion. Thus, reserves are insufficient to cover proposed spending levels, even if the reserves were “zeroed out,” which would not be a prudent decision. Oil prices are expected to remain depressed and state economists see the economy taking five years to recover employment to pre-Covid levels.
The LFC approved a recommended solvency plan last Wednesday, June 10. The plan applies some band-aids and maybe even a tourniquet or two to slow the bleeding, but the necessary surgery to arrest the hemorrhaging will apparently have to wait for the general legislative session in January. House Appropriations and Finance Committee Chair, Representative Patty Lundstrom (D-McKinley and San Juan), reminded committee members that the state faced a very similar situation in 2017. The first 10 days of that general session were occupied with passing a solvency plan for the current fiscal year and the remainder of the session was devoted to the next fiscal year’s budget. She advised members to expect the same process come 2021.
THE CHAMBER’S PERSPECTIVE
In the February 20, 2020 edition of Legislative Roundup, the last day of the 30-day session, we offered this observation on the just enacted budget: However, we do have concerns about the pace of overall spending. Why? Spending was increased 7.6%, above the LFC-recommended rate of 6.5% and amounting to another half-billion dollars in new spending, bringing the state budget within a stone’s throw of $8 billion. The state budget has grown 20% in two years. Whether this can be sustained if/when a downturn in oil and gas revenues occurs – which contribute $3.7 billion to the state treasury – is a really key question and concern.
We said this at a time when revenue from energy production seemed to be gushing from the ground like a runaway wildcatter’s well. Little did we know in what a short span of time the finances of the state would turn from bliss to despair. We recognize that there’s just so much that can be done in a special session. And, in an election year, there’s little appetite for deeper budget cutting. Yet, “sanding” the FY 21 budget to just about $7 billion (from $7.6 billion) doesn’t seem nearly enough. Not when the most recently released forecast of FY 21 revenues is $5.9 billion.
Here’s the problem: if we wait until January to solve the majority of our budget problem for the coming fiscal year, the fiscal year will be half over. That’s millions of dollars in lost opportunity to balance the budget. Last Thursday, KOB Channel 4 reported on the Chamber’s legislative agenda for the special session, featuring an interview with Chamber Board Chairman Mike Canfield.
In two years, from 2019 to present, recurring state spending has increased 20%, lifting the state budget from $6.2 billion to $7.6 billion. This is a rate of growth that simply isn’t sustainable, not even in the best of times and certainly not in the worst of times. As we recommend rolling back salary increases for state employees, let’s keep in mind that state employees still have jobs with good benefits, received substantial pay raises in FY 2020, and have not yet received the additional raises called for in the FY 2021 budget. In the private sector, unemployment has soared to more than 16% and many private sector employees are taking reduced salaries or hours worked.
Likewise, businesses – and especially small businesses (the backbone of New Mexico’s economy) – are struggling to hang on. Many have already closed shop. They need help and it should be a priority of this special session for government to step up, particularly given the fact that the federal government distributed COVID recovery aid to states for this very purpose. Specifically, we recommend:
- Setting aside $100 million of the federal CARES assistance funds for small business recovery grants.
- Forgiving all small business income taxes for 2020 as a helping hand for those struggling to get going again.
- Maintaining as much capital investment in roads and other critical infrastructure as possible, which puts people to work and produces long term economic benefit.
- Passing emergency liability protection to shield businesses that follow health guidelines from lawsuits if a customer contracts Coronavirus. This is no time for dubious lawsuits to be filed.
- NOT raising taxes of any kind.
- NOT cutting economic development funds like LEDA and JTIP, which are more needed than ever when the economy is at rock bottom.
- NOT saddling the oil and gas industry with additional layers of regulation.
The ABQ Chamber agrees with lawmakers and the Governor that federal COVID assistance dollars should be able to be used broadly by states, for whatever COVID-related problems are plaguing each state the most. In our case, budget solvency would fit the bill, and that’s why Chamber leaders have asked Congress to ensure that our state can use federal aid to help mitigate our budget shortfall. But, we cannot forget that the money was sent to states to help them recover economically, which in our case should mean devoting a portion of the federal money to supporting small businesses as they re-open and re-hire.
Leave a Reply