New Mexico's revenue outlook is getting worse as the economy sputters, aggravating the state's budget problems.

Revenues will be about $53 million lower next year and $10 million less this year than what had been previously expected, according to a new financial forecast outlined Thursday to the Legislative Finance Committee.

The drop in revenues means there's a potential budget gap of $500 million to $600 million next year. That's how much would be needed to avoid any cutbacks next year and to maintain a flat budget of services and programs with no growth.

However, spending cuts are almost certain to happen in the upcoming 2011 budget year, which starts in July.

Finance and Administration Secretary Katherine Miller said a combination of spending cuts and revenue increases was being considered as part of the administration's budget proposals for next year's Legislature. Lawmakers convene Jan. 19 for a 30-day session.

Gov. Bill Richardson said at a news conference in Albuquerque that he's looking at ways to consolidate government operations to help reduce spending. He's formed a task force to consider tax-increase options.

Sen. John Arthur Smith, a Deming Democrat and committee vice chairman, said he worried the latest revenue forecast is too optimistic and that revenues will drop further in coming months. New Mexico lagged behind much of the nation in entering the recession, Smith said, making it likely that the state's economy will rebound more slowly.

"It could be worse and that's my concern. I hope I am wrong. I hope we're starting to level out," Smith said in an interview after the committee's hearing.

The state expects to receive $5.1 billion in revenues next year. However, those revenues are less than the amount New Mexico is spending on public education and general government operations this year.

The budget gap of at least $500 million takes into account federal economic stimulus money the state is using for public schools and health care services. The Legislature estimates that at least $300 million in state money will be needed to replace federal funds next year unless budgets are cut.

There also are budget problems to fix in the current fiscal year. Miller said $137 million is needed to boost cash balances to provide an adequate financial safety net.

Miller said one solution is to cancel $150 million in previously approved capital improvement projects, freeing up that amount of money.

Chopping those projects will be politically difficult, however. Several committee members said they viewed spending on construction projects as an economic development tool to provide jobs, which also will generate tax revenues.




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