CHAMA, N.M. – Projected revenues for the next budget year are expected to deliver another windfall to New Mexico’s coffers.
New estimates released Wednesday by legislative and executive economists during a meeting of the Legislative Finance Committee in Chama show lawmakers will have a projected $2.5 billion in new money. That’s the difference between current spending levels and expected revenues in the next fiscal year.
Some lawmakers say the budget windfall represents an opportunity for New Mexico to change its trajectory and avert the big swings between spending growth followed by cuts that have been common over the past decade. However, other lawmakers and top budget officials cautioned that the recent revenue growth will likely not be sustainable in the long term.
Rep. Patricia Lundstrom, a Gallup Democrat who is chairwoman of the committee, said year-over-year spending growth should be kept in line with the state’s annual average over the past decade.
State spending already has increased by about 30% over the past three-plus years. Democratic Gov. Michelle Lujan Grisham, who is running for re-election, signed off this year on a $8.5 billion spending plan that included raises for teachers and state police officers and tax rebates for state residents.
This latest revenue surge could prompt a feeding frenzy in a state with high Medicaid enrollment levels, roads and bridges in need of repair, and a public school system that for years has been among the worst-ranked in the nation.
Sen. George Muñoz, also from Gallup and chair of the Senate Finance Committee, said the top priority should be revamping the state’s tax structure.
"If we want to really change, for once and for all, and keep our commitment to reducing tax rates, lowering the (gross receipts tax and) making New Mexico competitive with other states, this is one of the greatest opportunities we could have,” he said.
The state also is expected to see a budget surplus of nearly $3.8 billion for the current fiscal year and about $2.6 billion is set to flow into a state early childhood trust fund.
But Finance and Administration Secretary Debbie Romero warned lawmakers that they will have to consider supply chain issues, a possible economic recession and volatility in the global energy market as risks to the state’s revenue forecast.
Spending growth under Lujan Grisham has drawn criticism from Republican gubernatorial candidate Mark Ronchetti, who has said he would push to use surplus funds for annual rebates and tax cuts if elected.
Lujan Grisham sought to take credit for the record-high revenue levels, saying they were the result of her administration’s policies and “the healthy economic climate we are fostering.”
Oil production concentrated in the state’s corner of the Permian Basin is driving the boom. About two-thirds of the projected revenue growth for the coming budget year is expected to come directly from oil and natural gas receipts.
Ismael Torres, the committee’s chief economist, said New Mexico is the only state that has recovered to pre-pandemic levels of oil production. The state is projected to produce 590 million barrels of oil during the current budget year.
While oil and gas is New Mexico’s biggest source of income, other sectors also are projected to flourish in the next fiscal year. Manufacturing, for example, is expected to grow 41%, and economists are forecasting a 27% increase in leisure and hospitality services.
State economists also noted that inflation is driving up gross receipts tax collections as a result of rising costs for food, construction materials and other goods and services, as well as personal income taxes linked to higher wages.