Sunday, October 25, 2009

The New Mexico Budget Mess

Budget Basics

As we are embroiled in a serious budget crisis, it is important for voters to have a clear understanding of the State budget process. Informed voters are effective advocates and the taxpayers of New Mexico must become both informed and effective.

Some very helpful information sheets have been prepared by the Legislative Finance Committee (LFC), a permanent agency of the legislature. The LFC is comprised of professional economists and analysts who work with the executive branch agencies to prepare the State budget each year. These information sheets include a Budget Glossary, “the Fiscal Structure of New Mexico”, and a collection of essays called “Finance Facts”.

The fiscal year for the State of New Mexico goes from July 1 to June 30. The fiscal year is the year in which June 30th falls. We are in FY2010. FY2009 ended on June 30, 2009, FY2008 on June 30, 2008, etc.

The terms “recurring dollars” and “one-time” dollars are used a lot. An example of a “recurring” dollar as an expense would be the salary and benefits of a state employee. A “recurring” dollar as income would be revenue from the state’s royalty from an oil well on state land. A “one-time” dollar would be the money spent or not-spent (saved) on repairing a highway. The concern is that we are using “one-time” dollars (saved by not fixing the road) to cover “recurring” expenses (the state employee salary). Eventually we run out of these “one-time” funds and we still have the “recurring” expenses.

Budget Background

A little background is appropriate at this point. In FY2004 when the first budget was passed under Governor Bill Richardson/Lt Gov Diane Denish, the State spent $ 4.127 Billion. By FY 2008, the last year before revenue began to drop, New Mexico was spending $5.994 Billion, an increase of 45 percent.

Then the economy started to collapse. Estimates of the amount of revenue the State could expect to collect began to fall. The estimate for FY 2010 dropped by $286 million between last October and December when in was projected that FY2010 would produce $5.733 Billion. The collapse in expected revenue continued and accelerated: February - $ 5.484 Billion; August - $ 5.052 Billion; this October - $ 4.833 Billion.

To put it bluntly our State tax revenue has cratered. We have gone from about $6 Billion to about $4.8 Billion, a drop of $1.2 Billion or around 20 percent in just over sixteen months. We are now expected to have the same income as we did in FY 2006 if things don’t continue to worsen.

Special Session

During this Special Session the legislature was to address two primary issues. The first was to transfer funds from the reserve accounts the State maintains to cover unexpected (by some) shortfalls for FY 2009. The final audited numbers for FY 2009 are not in yet, but it is estimated that the State needs to take about $210 million out of the reserves (think of it as a savings account) to cover operating expenses (think of this as the checking account).

The second issue was to reduce expenditures for the current fiscal year, FY2010, because tax revenue flowing into the State Treasury has failed to meet projections. This problem was not unexpected. In fact, in March 2009 ALL of the Republicans in the House of Representatives voted AGAINST the FY2010 budget. We knew then that it did not deal with the problems this State was facing.

Spending for FY 2010 was cut, but only enough to cover about a third of the shortfall in revenue. The rest is to come from “one-time” dollars. Like many others, I believe we have simply delayed dealing with the real problem, and as a result, it will get worse.

Regarding the FY 2009 shortfall, the Richardson/Denish administration wanted what amounted to a blank check to pull funds out of reserves for both FY 2009 AND FY2010. That passed, but without a two-thirds majority. Therefore, the money cannot be moved for ninety days, and many of us believe that the funds cannot be taken legally from the restricted reserves. All of the Republicans voted against this transfer. This battle did not get the attention it deserved and could be the cause of some lawsuits and/or another special session.

The Future

In January we are to prepare a budget for FY2011. Many of us fear the problems will continue to get worse. Taxes are not expected to be back to FY2008 levels until FY2015 or later. Also in FY2011 the Federal stimulus money ends. This administration has been using these dollars to cover shortfalls.

To my “Tea Party” friends, you need to make sure your voices are heard in Santa Fe before and during the thirty day session. I guarantee you that the folks who want to raise taxes are speaking often and loudly.