Key senator: Deeper cuts needed to counter revenue

‘We no longer have a structural deficit, we have an actual deficit,’ said Sen. John Arthur Smith, a Deming Democrat who chairs the Senate Finance Committee during a news conference Thursday at the Capitol. Clyde Mueller/The New Mexican

A top lawmaker and the state treasurer say sagging revenues have pushed New Mexico to the financial brink and that the governor needs to convene a special session this summer to ensure the state can rebalance its checkbook and pay bills.

State Sen. John Arthur Smith, a Democrat who chairs the Senate Finance Committee, said Wednesday that the general fund, which pays for everything from prisons to health care to schools, will close out fiscal year 2016 with a shortfall of at least $150 million, and more money is needed from reserve funds to keep it solvent.

The fiscal year ended June 30, and new estimates released this week indicate the state took in just over $5.7 billion during the year, with $5.9 billion in spending.

State revenues by month

The chart shows state revenues by month for each of the past three years. Source: New Mexico Legislative Finance Committee Dan Schwartz/The New Mexican

“There’s no way to fix 2016 except with reserves,” Smith said. “It’s already behind us. You’re going to have to sweep every corner, but we believe we can cover that. It’s going to be close.”

State Treasurer Tim Eichenberg said his office does not write checks to employees, vendors and taxpayers, but it has to pay out the money when vouchers are presented. Continued deficit spending is a serious situation, he said in an email.

“The ramifications of the state treasurer’s office ceasing to honor all payments issued throughout state government is frightening,” Eichenberg said. “This situation needs to be addressed to ensure that critical functions of government are not interrupted — such as schools, police, prisons, health and human services, and payroll to state employees.”

A spokeswoman for the Department of Finance and Administration and another from the governor’s press office did not respond to The New Mexican’s questions regarding the state budget situation.

No one is sure how long the state can continue to spend more than it is taking in. But Smith, in a letter, has formally called on Gov. Susana Martinez to summon the Legislature back to Santa Fe in August to use some or all of the $230 million in an account derived from a national legal case against the big tobacco companies.

The money was earmarked for various programs to cut smoking and improve public health, but it can be used for fiscal emergencies and has supplemented day-to-day spending in previous years.

For fiscal year 2017, Smith and others are saying the state needs to enact more spending cuts, additional tax revenues or both.

Faced with a pledge by Martinez not to increase taxes, the Legislature balanced the state budgets for both 2016 and 2017 with spending cuts and transfers from unspent money and reserve accounts. With opposition from the governor, several measures by Democrats to delay planned corporate tax cuts or increase taxes for programs such as Medicaid or highway projects did not move forward.

New Mexico State Land Commissioner Aubrey Dunn was one of the first Republicans to caution about the budget early in the 2016 legislative session. He called for a temporary gasoline tax, as well as spending cuts, in order to maintain reserve balances and avoid emergency measures.

Even if lawmakers tap into the tobacco money for 2016, Dunn said, the general fund is starting 2017 with an unrealistic revenue target.

“They’re half a billion in the hole,” he said. “They’re going to have to cut expenses or raise revenues or a combination of both. The people of New Mexico really need to know where we are.”

Lawmakers have been watching monthly revenue tracking reports compiled by Legislative Finance Committee economists that show the impact of the oil and gas slowdown on the economy. Overall revenue in fiscal year 2016 is down $446 million from 2015 through May, with revenue from oil and gas falling some 30 percent.

The industry itself has lost 10,000 jobs in the state since the end of 2014.

Rep. Larry Larrañaga, an Albuquerque Republican who chairs the House Appropriations and Finance Committee, said lawmakers need more detailed information before reconvening in a special session. He said the final closeout numbers for fiscal year 2016 won’t be known until the end of August, about the same time economists will have some data for fiscal year 2017, which started July 1.

Oil prices are now in the mid-$40 range, up from when the 2017 state spending plan set a target of $38 per barrel, and there is already some bounce-back to gross receipts revenue in the Albuquerque metro area, he said.

“There’s no doubt the numbers are substantially weakened. I think it would be prudent for us to wait until we see what the final numbers are for the end of June. We would be well served to wait and have better information in trying to make a decision.”

He said the administration of former Gov. Bill Richardson had perhaps an $800 million shortfall one year, and Republican Gov. Gary Johnson faced a $400 million deficit.

“We’re looking at potentially a $200 million shortfall here,” Larrañaga said.

The state ended fiscal year 2015 with a general fund balance of $713 million, or 11.6 percent of spending. If revenue projections were on target, the year-end balance June 30, 2016, would be $350 million, or 5.6 percent.

But with lower tax revenues coming into the state, that amount could be as low as $150 million, or 2 percent of the operating spending, at a time when bond-rating agencies and fiscal managers look for a 5 percent fund balance.

“We’re down to almost nothing in the reserve account,” said Democratic state Rep. Jim Trujillo of Santa Fe. “When there’s not enough money in the bank, I don’t know.”

A larger problem is rumbling from some lawmakers who say the Martinez administration is breaking the law in spending money that is not supported by current budget information.

The statute, passed in 2003, can carry a one-year jail term. It makes it a violation for the Cabinet secretary of the Department of Finance and Administration or the state treasurer to draw “any warrant on the state treasurer when he knows or, with the use of available accounting information, should reasonably know there is an insufficient unexpended and unencumbered balance available for the purpose for which the warrant is drawn.”

Sen. Smith said he has asked the Legislative Finance Committee staff to alert the attorney general that there might be a violation.

Dunn said the Legislature authorized Gov. Susana Martinez and her administration to tap reserves, but not go below 4 percent of the general fund.

“They say they don’t have the numbers. I would say they have,” Dunn said. “The maximum [in reserve funds] is $160 million, which is well below 4 percent. How is it they are able to go below 4 percent?”

Larrañaga, a retired engineer, said no one will know what the final 2016 numbers are until the books have been closed. He said agencies can conserve money and return that to the treasury. And revenues before June, the last month of the 2016 fiscal year, have not yet been posted.

“That’s reaching far out there to make that comment that we are breaking the law,” Larrañaga said. “If there is some proof that the audit will show we don’t have the money to pay the bills, I would like to see that.”

Contact Bruce Krasnow at brucek@sfnewmexican.com.

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