The state’s early childhood trust fund.
Hard-fought pension reform.
Coveted capital outlay projects.
And a plethora of pay raises.
Those are just some of the high-profile budget items signed into law last month. But all could soon be on the chopping block.
Legislators are considering reducing funding for once-sacred projects in order to address New Mexico’s massive budget shortfall in the wake of plummeting oil prices and the impact of the COVID-19 outbreak on tax revenue and the economy.
Current projections show the hole in the current budget for fiscal year 2020 will be around $400 million, while revenue for the 2021 fiscal year could be $1.6 billion short of projections, according to legislators in charge of budgetary matters. And yet, while the picture appears grim, nothing is certain — the numbers constantly change given the volatility of the health and economic crises.
“There’s going to be literally hundreds of businesses going out of business over the next year,” said Sen. Steven Neville, who sits on the Senate Finance Committee. “We don’t know what the impact will be on the economy.”
While a special legislative session likely will take place in mid-June to patch the most pressing gaps in the budget, lawmakers are quick to point out the work won’t stop there. A budget for fiscal year 2022 could be even more challenging, particularly if the U.S. economy faces a long recession.
That’s because the state may use much of its “one-time money” from reserves and possibly a federal stimulus package to address the shortfall for fiscal year 2021, meaning there may not be much of those funds left for the following year.
“We know the 2022 budget is going to be a tough hill to climb without an aggressive economic recovery,” said Sen. John Arthur Smith, chairman of the Senate Finance Committee.
On the long list of approved appropriations legislators are analyzing for possible cuts is the $55 million allocated as part of a bipartisan effort to put New Mexico’s state pension system on a path to solvency.
The reform, one of Gov. Michelle Lujan Grisham’s priorities during the last session, calls for increasing contributions from public workers and the state in a bid to eventually eliminate the Public Employees Retirement Association’s $6.6 billion unfunded liability.
Neville, R-Aztec, said legislators could potentially cut that $55 million figure in half.
“We may not be able to afford all of that,” he said. “That’s just one of the myriad ideas we’re looking at.”
Another item under scrutiny is a $320 million appropriation to create the state’s new Early Childhood Education and Care Fund, an initiative co-sponsored by Smith and also a priority of Lujan Grisham’s.
That dollar figure could be reduced, although Patty Lundstrom, chairwoman of the House Appropriations and Finance Committee, cautioned the cut might not happen until next year’s session.
The new trust fund emerged from a much-touted compromise between the governor and Smith after he and other fiscally conservative legislators had blocked previous efforts to draw money from the state’s Land Grant Permanent Fund to pay for early childhood education.
Legislators might also take their ax to public works projects approved with general fund money, said Lundstrom, D-Gallup.
Lujan Grisham already carried out line-item vetoes on many capital outlay projects before she signed legislation in the early days of the COVID-19 outbreak. Still, around $42 million in general fund projects have the green light to move forward, according to the Legislative Finance Committee. Those could be cut during the special session, Lundstrom said.
Legislators also are looking at large sums of general fund money that were approved for capital outlay projects in previous years but that haven’t yet been spent. Lundstrom said those funds conceivably could be used to help plug the current budget gap.
“We’re looking at sweeping some of that stuff that hasn’t been spent in the past,” she said.
As of March, around $1.2 billion for more than 2,000 capital outlay projects remained outstanding, the majority of them appropriated in 2019, according to the Legislative Finance Committee. More than 65 percent of that total consists of general fund projects.
Another critical item is a pay raise for teachers and state employees, who were winners in the most recent legislative session. But while raises are politically sensitive, they also are financially costly.
“I think the pay raises will be reduced,” Lundstrom said. “I’m pretty sure that’s going to be one of the recommendations.”
Keeping the raises could be particularly draining on the budget because they represent a recurring expenditure that would also have to be paid in future years, said Smith, D-Deming.
“I think all of the recurring expenditures have to be on the table, and obviously the raises are part of that,” he said. “If you grant those right now, you’re going to have to take that next year and fund an additional higher amount once again, and you may not have the horsepower to do it.”
A wild card within the debate is whether New Mexico will receive federal funding from yet another coronavirus-related stimulus package that could be forthcoming from Congress.
Lujan Grisham and key legislators repeatedly have said they need to know what plans Congress has to aid the states before they can know how much of the budget to cut during a special session.
It’s unclear when they might get clarity on that.
Sen. Tom Udall, D-N.M., said he will try to get his fellow senators on that path when the body returns to session next week.
“Senator Udall will be pushing for the next relief package to include funding for cash-strapped states that are facing tough choices about their ability to provide basic public services — including emergency services — as revenues drastically slip,” said Udall spokeswoman Annie Orloff.
If the state gets federal help, it would be more likely to postpone tough budget decisions, such as whether to reduce the appropriation to the early childhood trust fund, Smith said.
“A lot of it is contingent on whether we have the flexibility with the federal monies,” he said.
A new twist in the budget preparations emerged Tuesday when the Governor’s Office confirmed Finance and Administration Secretary Olivia Padilla-Jackson submitted her resignation.
“It’s a personal loss for me,” Lundstrom said. “Once you can gel with somebody and you feel you can trust them and work with them … I’m sorry to see her leave.”
Deputy Secretary Debbie Romero has been named acting secretary.
Lundstrom called Romero “very smart” and “always a really good team player.”