Gov. Michelle Lujan Grisham and a key legislative panel released their respective plans Wednesday to fix a sharp decline in state revenue, mostly seeing eye to eye on how to mend a budget gap caused by plummeting tax revenue and oil prices amid the novel coronavirus pandemic.
Both the executive and legislative branches are proposing to use a combination of spending cuts, reserves and federal funding to deal with a projected $2 billion drop in state revenue for the next fiscal year. With the Legislature scheduled to convene for a special session next week, the two branches are already largely in agreement, the governor said.
“We are incredibly close to the discussions that we’re hearing and feedback that we’re getting from the Legislature,” Lujan Grisham said. “That’s how we should be headed into the special session, with much more agreement than not.”
Lujan Grisham and the Legislative Finance Committee, a key bipartisan panel that oversees budgetary issues, both call for drawing down the state’s reserves from 25 percent to around 12 percent of spending, which would leave reserves at $873 million, according to the governor’s proposal.
Both branches unveiled similar proposals for budget cuts for fiscal year 2021 — $652 million in the case of the governor’s plan and between $587 million and $626 million according to the legislative panel’s plan. They also both call for using between $725 million and $750 million in funding from a federal stimulus package.
“I’m pretty happy with what we’ve come up with,” said Rep. Patty Lundstrom, chairwoman of the House Appropriations and Finance Committee.
The two solvency plans do contrast in areas that were high-profile parts of the budgetary process during the legislative session that culminated in February.
Both plans call for paring back the 4 percent pay increases approved for school employees and state workers, but Lujan Grisham wants to set the raises at 2 percent while the legislative committee proposes increases of either 1 percent or eliminating the increases completely.
The committee also wants to cut the $12 million in recurring funding and $5 million in one-time money for the Opportunity Scholarship program that has been one of the chief proposals of the Lujan Grisham administration. Funding for the program, which aims to provide free college tuition for New Mexicans, was pared back but ultimately approved during the last session.
“We’re recommending the elimination of this particular program,” LFC Deputy Director Charles Sallee said during the panel’s virtual meeting Wednesday.
According to Lujan Grisham’s plan, the cuts to the state budget would come from a number of sources, including a 4 percent reduction in spending for most state agencies, cuts in roads spending and reduced appropriations to K-5 Plus programs.
The executive and legislative branches also propose paring back the one-time allocation approved for a new trust fund for early childhood education, from $320 million to $300 million.
Both the governor and legislators stressed the budgetary difficulties won’t end with the special session.
“We should be prepared for 24 months of what is fair to present as austerity in the state,” Lujan Grisham said.
Lawmakers said there will be plenty more work to do in the future, as state economists are also projecting a big revenue decline for fiscal year 2022 — $1.7 billion less than originally forecast.
“If we don’t get some significant recovery between now and next year, we’re going to have some very serious problems going into ’22,” said Sen. Bill Burt, R-Alamogordo. “With even moderate recovery, we may still be in a bind.”
Sen. John Arthur Smith, chairman of the Senate Finance Committee, said he also is concerned about oil revenue, noting a recent recovery in crude prices won’t help the state out of its current crunch because the number of active drilling rigs has dropped dramatically.
Still, the governor said the state is in a better position because of the high level of reserves it approved during the last legislative session.
“I’m really grateful we’ve held firm on higher reserves,” Lujan Grisham said. “That puts us in a remarkable situation to make sure we can be solvent moving forward.”
The governor also said any measures aimed at generating new revenues for the state, such as potential tax increases, likely will wait until next year.
“Where we are is to deal with solvency,” the governor said.
State economists have revised their revenue forecasts for the next fiscal year to only $5.9 billion, a 20 percent drop from the $7.9 billion that had been expected in their forecast in December. The state also is expected to take in $439 million less in revenue for the current fiscal year, which ends June 30.