New Mexico is reaping a revenue windfall because of high prices for oil and natural gas, and a top legislator says the state should give its citizens a tax rebate to help with skyrocketing fuel prices.

Revenue collections should be almost $400 million higher than expected in the current budget year, mostly because of the money New Mexico collects from taxes and royalties on the production of oil and natural gas.

The updated revenue forecast was issued Wednesday by economists in Gov. Bill Richardson's administration and the Legislature.

The revenue windfall this year can be used for one-time spending projects such as a tax rebate, capital improvements, to supplement the budgets of agencies or pad the state's already healthy cash balances.

Sen. John Arthur Smith, a Deming Democrat and chairman of the Legislative Finance Committee, said New Mexico should use part of the money to provide a tax rebate to help residents with high prices at the gasoline pump. He said the rebate would be similar to one the state provided in 2005 because of rising energy prices.

Some of the revenue windfall, Smith said, also should go to help cover a highway financing shortfall, which has caused the Richardson administration to delay projects that were part of a statewide transportation package approved in 2003.

According to the revenue forecast, lawmakers and the governor should have about $392 million in "new money" in the next budget year for spending increases or to offset permanent tax cuts. The Legislature will convene in January for a 60-day session and a top assignment is writing a budget to finance public education and general government in the 2010 fiscal year, which starts in July 2009.

Earlier this year, the Legislature failed to go along with a proposal by Richardson for universal health care. Many lawmakers expressed doubts about the potential costs of extending health coverage to the more than 400,000 uninsured New Mexicans.

But Richardson pointed to the revenue projections in renewing his appeal to lawmakers to approve a heath care expansion. The governor has said he'll call a special session of the Legislature in August or September to consider mandating health insurance coverage for all residents. New Mexico has the nation's second highest rate of uninsured.

"We can invest in health coverage in a fiscally responsible way," Richardson said in a statement. "While cynics will no doubt complain about using revenue from oil and gas, I am confident — as I have been for the past six years — that New Mexico's economy is performing well and will allow us to expand health care coverage to all New Mexicans."

Smith disagreed. He contends that oil and gas revenues remain too volatile to rely on in financing a permanent health care expansion.

"If the governor still wants to stay that course on health care, I think he needs to suggest how he wants to raise taxes to the tune of $165 million a year," Smith said in a telephone interview. "We need something that is reliable and recurring to satisfy that need. The dollars that we have, by my way of thinking, are not going to be sustainable. I wish they were but I am just very, very apprehensive about it."

Besides health care, public school funding is a potentially big-ticket issue facing lawmakers. A proposed overhaul of the state's school funding formula is expected to cost several hundred million dollars to implement.

High prices for oil and gas will help generate more revenue this year than had been previously projected. But that's offsetting weaker revenues in gross receipts and income taxes, which are affected by the slumping national economy. Revenues from oil and gas will account for 25 percent of the money that flows into the state's main budget account this year — a record high.

The administration's top tax and budget officials outlined the revenue forecast to the LFC, which was meeting in Chama. They warned lawmakers in written testimony that there were risks to the revenue forecast, including that New Mexico's economy could be pulled down — further weakening broad-based tax revenues — if the national economy worsens. The state also might have to increase its spending to offset reductions in federal money if Congress makes cutbacks because of a deep national recession.

About $6.4 billion in so-called recurring revenue should flow into the state's main budget account next year. That would be a drop of 0.4 percent over anticipated revenues this year — a reflection of the windfall from oil and gas. The latest revenue forecast assumes a decline in oil and gas prices next year. The long-term outlook is for modest revenue growth — 1.6 percent in 2011 and 3.3 percent in 2012.

Rep. Luciano "Lucky" Varela, a Santa Fe Democrat and LFC vice chairman, said he was concerned about the financial outlook beyond 2010 because projected revenue increases were unlikely to sustain much budget growth in programs. If lawmakers implement programs now that significantly increase in cost in coming years, he said, there may not be enough money to pay for them in the future.

"We have to be careful that we don't set up a spending pattern that's going to create a deficit situation where we have to cut programs to balance the budget," said Varela.

The 2009 budget year started in July and runs through June 2009. The current budget provides for $6 billion in spending — an increase of 6.3 percent over the previous year.

The pool of $392 million of "new money" for the 2010 budget year is the amount projected revenues next year exceed current spending. If all the money was spent, it would allow for a 6.5 percent budget increase.

The state should have a hefty amount of money to finance capital improvements this year because of high energy prices. About $629 million will be available from bonds backed by severance taxes. The governor suggested that as much as $1 billion could be spent on capital projects if part of this year's revenue windfall went for that purpose along with bond financing.




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