It’s been a constant bipartisan refrain over the past week — the budget fixes made during the special session won’t be enough.
It’s true that legislators just came to Santa Fe amid a pandemic to patch a $2 billion budget shortfall for the fiscal year that starts in less than two weeks, and they approved the final product for Gov. Michelle Lujan Grisham’s consideration in relatively short order.
But there’s no rest for the weary. Another large figure looms in the not-too-distant future: a $1.7 billion projected hole for the following budget year.
“Folks, we’ve got a statewide problem, and it’s extremely serious,” Sen. John Arthur Smith, chairman of the Senate Finance Committee, told his colleagues Saturday.
“I don’t want people to leave here today and go home and think we have it fixed,” he continued. “There’s a lot of work that will have to be done in January.”
Senators left the Capitol shortly after Smith made those comments, having mended the budget gap by cutting over $600 million in spending and drawing on federal funding and cash reserves.
The special session wasn’t over, however, as the House still has a number of high-profile bills to take up on Monday. Under state law, senators would actually have to come back to the Roundhouse if their House colleagues take three more days to get through their legislation.
While that’s unlikely at this point, what is certain is that legislators will have to tackle yet another shortfall during the next legislative session, a 60-day gathering that starts in January.
And in many ways, that will likely be a taller order than the budget repairs lawmakers just made.
For one, the state already allocated some $750 million in federal stimulus funds to the 2021 budget, so that money won’t be available for the following year.
Additionally, if they use a lot more of the state’s remaining cash reserves — which already will fall from 25 percent to 12 percent of spending levels under the just-approved budget — that would leave New Mexico without a cushion for future years and could affect its credit rating.
Earlier this month, Standard & Poor’s already revised its outlook for New Mexico’s “AA” rating from stable to negative because of the steep drop in oil prices and production.
“In our view, the oil and gas market will remain weak for several years, and ongoing budget pressures may persist for some time,” the ratings agency said, explaining its New Mexico revision.
In an interview after the Senate adjourned Saturday, Smith said it would have been wise to have slashed more from the budget during the special session to avoid what could be even deeper cuts in January.
The revised 2021 budget still calls for a spending increase over the previous year even as New Mexico faces one of the sharpest economic downturns in history. The increase was lowered to around 1.5 percent from the original 7.6 percent.
But Smith said to get the solvency plan to pass, he had to find a middle ground between disagreeing legislators.
“You’ve got a large element out there that wants to spend more money,” Smith said. “Then, you have the other side that [says] you didn’t cut enough. You’re trying to strike a balance and get the votes to lift it.”
The Deming Democrat acknowledged he had less power of persuasion than in previous efforts to craft a budget because he’s on his way out of office. His 32-year Senate career will end in December after he lost his primary election earlier this month.
“I might have been in a better position to advocate for more,” said Smith, sitting in his third-floor Capitol office with some of his belongings already removed.
Smith suggested during the budget debate that the state might have to cut another $700 million in fiscal year 2022 spending in January.
Throughout the budget process over the past couple of weeks, state officials and legislators have sought to diminish the extent of the spending reductions, at least linguistically.
For instance, they refer to lowering spending increases as “sanding,” a more pleasant word than “cuts” when referring to reducing the budget passed in February.
That annoyed at least one legislator during Saturday’s debate.
“Many of you know I do woodworking,” said Sen. William Soules, D-Las Cruces. “You don’t use a sander to make cuts. And we’re making cuts to the budget we passed. We ought to talk about it like that.”
Soules was one of the legislators who wanted fewer cuts, while others said the Legislature should have proactively slashed more to avoid future pain.
“What we’ve got coming in January is going to be a train wreck,” said Sen. Ron Griggs, a Republican from Alamogordo.
Even progressive Democrats acknowledged the potential seriousness of the problems that lie ahead.
“If we think this is bad, I hear you. January is going to be even worse,” said Sen. Mimi Stewart, D-Albuquerque.
The budgetary chief in the House, Rep. Patricia Lundstrom, concurred as well, noting she would grill state agencies about how they can reduce their budgets.
“We’re going to have to do some major adjustments,” said Lundstrom, chairwoman of the House Appropriations and Finance Committee.
Another factor when lawmakers take on the 2022 budget could be a loss of institutional knowledge in the Legislature.
At least one-quarter of the Senate will no longer be in the chamber in 2021. Seven incumbents lost their primary elections earlier this month, two senators are retiring and two members have died over the past year.
Smith has been at the helm of the Senate Finance Committee for 12 years, and while he’s long been criticized by advocates for not spending enough in areas like education, he has the experience of having led the chamber’s budgetary response to the 2008 financial crisis and the 2016 oil price crash.
Additionally, the former vice chairman of the Finance Committee, Carlos Cisneros, died last year.
Instead of counting on members like Smith, Cisneros and 20-year senator Mary Kay Papen, who also lost, the Senate will contain a host of freshmen members when it endeavors to pass a sound 2022 budget during an economically difficult time.
“I just can’t imagine doing budget without John Arthur,” Sen. Bill O’Neill said Saturday during a memorial honoring Smith and six other outgoing members.
Some senators lamented the electoral defeats.
“After this election people called me and said, ‘This is so great,’ and I said, ‘This is not great,’ ” Stewart said, referring to the primary. “We have lost people that care about this state and usher us forward.”
Others said the loss of the senators would make January even harder.
“What I’m afraid of is when we get to January, it’s going to be even harder to deal with, and we’re going to lose the folks who are best equipped to deal with it,” Griggs said.
Smith told the Senate he thought the body would do fine moving forward, but urged younger senators to listen and learn from more experienced members.
He said later that incoming lawmakers who have campaigned on promises to enact expensive new initiatives could find out they’re not able to make good on them because of the economic circumstances.
“When they come into this arena down here and find out they can’t do what they want, and in fact may have to cut even more, that’s a learning curve they’re going to have to go through,” Smith said.
Smith added that the new Legislature may try to tap more of the Land Grant Permanent Fund to try to address the budget crisis, a move he has long opposed. He said such an effort, which would require a constitutional amendment, could take as long as two years because it would need voter approval in New Mexico as well as the blessing of Congress.
As far as January’s budgetary task, the difficulty of the endeavor will depend upon how the economy and oil prices evolve over the next six months.
If the economy rebounds quickly, the state’s tax revenue would rise again, and future budget cuts could be minimal.
There has certainly been positive news from the oil markets, too, as the price of West Texas Intermediate crude is already back up near $40 per barrel after oil futures turned negative in April.
The problem, according to Smith, is that the economic recovery is likely to take time, and oil production will remain low until consumption of petroleum products like gasoline and jet fuel gets back to normal after being beaten down by the pandemic.
“This looks like it’s going to be a prolonged downturn,” Smith said. “So, the revenues are going to be anemic.”