Wednesday was only the second day of the 30-day legislative session. But already there are signs that battles over the state budget won't be just over where to spend dollars, but how much money New Mexico has to spend.

Sen. John Arthur Smith, a Deming Democrat, warned Gov. Susana Martinez in a two-page letter this week that he thought New Mexico's projections of extra money for the budget year that starts July 1 are too rosy.

Prior to the start of the 2012 legislative session, state economists predicted New Mexico would have $250 million in extra revenue for the new budget year.

The prospect of that new cash, and what to do with it, already has exposed a philosophical difference between Martinez and the Legislature's leadership.

Martinez has proposed more than $50 million in targeted tax cuts for small businesses, research and development firms, and manufacturers.

In contrast, the Legislature's proposed budget recommends putting the expected new money back into programs that were cut in recent years as the state responded to falling tax revenues.

But Smith, who chairs the Legislature's budget arm, the Legislative Finance Committee, said there might not be enough money to go around because of a drop in the price of natural gas.

Natural gas production gives New Mexico its largest source of tax revenue among the minerals mined across the state by various industries. That's why Smith and other state officials pay close attention to its price.

According to state officials, every 10-cent swing in the price of natural gas is worth more than $11 million in tax revenue — a drop in tax revenue if the price goes down and an increase if it goes up.

"We have to be careful," Smith said. "If the economy was perking on all cylinders, I would move ahead. But it's not."

On Tuesday, the senator met with Martinez and her budget secretary, Tom Clifford, but the sit-down didn't alleviate any of his concerns, Smith said.

Smith is not alone in his concerns.

"The way [the natural gas price] is going down right now, it's already quite a bit below what the forecast was," said Republican Rep. William Gray of Artesia, who retired from the oil and gas industry after decades in the refining business. "We're probably $50 million too high."

On Wednesday, Clifford defended how state officials had reached their tax revenue projection, saying it was completed by professional economists at several state agencies.

He also said natural gas is only a part of a diversified portfolio of revenues coming in to the state. He added that revenues from the state gross-receipts tax are coming in stronger than projected, potentially offsetting a possible drop in tax revenue from natural gas production.

"You wouldn't infer that the whole portfolio was losing money based on one component," Clifford said.

The state's next revenue projection should become available in the middle of next week, Clifford said.

"I don't think we have a lot to fear on the revenue side," Clifford said.

Contact Trip Jennings at 986-3050 or tjennings@sfnewmexican.com.