Many years ago, former Illinois United States Senator Everett Dirksen was famously quoted as saying:
“A billion here, a billion there, pretty soon, you’re talking real money”.
Governor Michelle Lujan Grisham has submitted her very first budget for consideration by the New Mexico Legislature which starts on January 15, 2019 and it is “real money” by anyone’s standards.
The budget signals a bright new day for New Mexico and an end to the last 8 years of overcast.
The proposed total budget for New Mexico is $7.1 billion.
The $7.1 billion budget increases state spending by $806 million.
You can review the entire 115 page “EXECUTIVE BUDGET RECOMMENDATION Fiscal Year 2020 July 1, 2019 – June 30, 2020” at the below link:
The $806 million increase is a 12.7% increase over current levels.
The additional $806 million in new spending comes from the dramatic increase in oil and gas revenues in southern New Mexico and the Permian basin drilling.
Under Governor Michelle Lujan Grisham’s proposed budget state spending will hit an all-time high.
The Lujan-Grisham 2019-2020 proposed budget includes increasing spending levels in the following areas:
Public schools: $3.2 billion, a 18% increase.
Higher education: $830.2 million, a 3.3% increase.
Medicaid: $1.01 billion a 6.7% increase.
Courts, district attorneys and public defenders: $306.3 million, a 3.5% increase.
Prisons: $321.4 million a 5.2 percent increase.
The overall spending increases included in Lujan Grisham’s budget are larger than the cumulative state spending growth during the 8 years that former Governor Susana Martinez was in office.
The biggest reason for the sharp contrast between the Republican Governor Martinez budgets and the Democrat Governor Lujan-Grisham budget is that New Mexico had two economic downturns during Martinez’s tenure that mandated spending cuts, reduced take-home pay for state employees and budget-balancing maneuvers.
New Mexico’s revenue flow has increased because of the dramatic spike in oil and gas production.
Notwithstanding the tremendous spike in new monies available, the Lujan-Grisham proposed budget calls for $1.8 billion, or 25% of state spending, to be set aside in cash reserves in case the projected revenues from oil and gas production for the coming fiscal year don’t materialize.
DISTRICT COURT RULING
Education is the number one priority for Governor Lujan Grisham and the legislature that starts January 15, 2019 because of a District Court ruling that New Mexico was failing to meet its constitutional requirement to provide sufficient schooling to all students.
On July 20, 2018, Santa Fe District Court Judge Sarah Singleton ruled that the state of New Mexico is violating the constitutional rights of at-risk students by failing to provide them with a sufficient education.
The court ruled many New Mexico students are not receiving the basic education in reading, writing and math they should be receiving in our public-school system.
As a matter of law, Judge Singleton wrote the “lack of funds is not a defense to providing constitutional rights.”
In her blistering written opinion, Judge Singleton wrote:
“[The evidence presented at trial] proves that the vast majority of New Mexico’s at-risk children finish each school year without the basic literacy and math skills needed to pursue post-secondary education or a career. … Indeed, overall New Mexico children rank at the very bottom in the country for educational achievement. … The at-risk students are still not attaining proficiency at the rate of non-at-risk students … and the programs being lauded by [the Public Education Department] are not changing this picture.”
According to the judge’s ruling, in New Mexico, 71.6% of the state’s public-school students come from low-income families, and 14.4% are English-language learners.
Judge Singleton addressing proficiency rates for Native American students said that in the past 3 years, those students’ reading proficiency was at 17.6% and their math proficiency was at 10.4%.
The Court found that New Mexico does not have enough teachers and that New Mexico teachers are among the lowest paid in the country.
Governor Lujan Grisham has already announced her administration will not appeal the District Court ruling.
CHILDREN’S PUBLIC EDUCATION MADE A PRIORITY IN RESPONSE TO DISTRICT COURT RULING
True to her campaign promises, there is a dramatic increase in spending for New Mexico’s public-school system and children.
More than 50% of the proposed $806 million budget increase will go to the public education system.
Lujan Grisham’s budget plan calls for a more than a $500 million increase in public school spending.
The budget contains a sharp and dramatic increase in funding for pre-kindergarten programs.
$60 million in new appropriations is being proposed for pre-kindergarten programs serving 3 and 4 year-old children statewide.
The goal is to increase pre-kindergarten enrollment from 42% to 80% over the next five years.
The submitted budget includes funding in the amount of $119.9 million for the “K-5 Plus formula factor” which will allow for and require all eligible schools to add 25 days to the school year.
An additional amount of $18.7 million is included to fund the “Extended Learning Time Formula” factor in order to add 3 school days to all schools for a total of 183 days.
The new budget for education needs provides for:
$6 million in funding to support competency-based science, technology, engineering, arts, and math (STEAM) standards in classrooms across New Mexico $5 million for career technical and vocational education and apprenticeships programs build-up; $1 million for after school and summer enrichment programs
$6 million for an attendance success initiative
$1.5 million for college preparation, career readiness, and dropout prevention
$2 million for a community school rollout
$2 million in funding is proposed for the Higher Education Department to develop centers of excellence in the areas of bioscience, cybersecurity, agriculture and sustainable and renewable energy.
$25 million in funding to reinstate the College Affordability Act
State teachers and principals will get a 6% salary increase next year under the budget.
Lujan-Grisham under her budget proposes to increase New Mexico starting teacher pay from $36,000 to $41,000 per year.
Higher pay levels are also being proposed for more experienced educators.
Teacher minimum salary levels for the three-tier licensure program will be raised to $41,000, $50,000, and $60,000 for Tiers I, II, and III, respectively.
The proposed budget raises the minimum salaries for principals to $60,000.
Additionally, to help the lowest-paid educational personnel, the proposed budget includes funding for the implementation of a $12 per hour minimum wage
The state’s funding formula for public schools will also be adjusted so more money would flow to districts with large populations of Native American, disabled and low-income students, along with English-language learners.
Albuquerque and New Mexico for the last 4 years have been shocked and haunted with the news of the tragic and brutal killing of children by their own parents.
Media reports all too often have included reports where those children had fallen through the cracks of law enforcement and the New Mexico’s Children, Youth and Families Department.
Lujan Grisham’s recommendation calls for an additional $36.5 million for the chronically understaffed Children, Youth and Families Department.
Under the budget, 102 new social workers are to be hired by the agency’s child’s Protective Services Division.
HEALTH CARE SERVICES
The Governor Michelle Lujan Grisham’s proposed budget includes significant investments in health services for New Mexicans, with the largest components being Medicaid enrollment growth, Developmental Disabilities Waiver, and funds to address the behavioral healthcare system.
The Governors proposed budget includes a total increase of $25.7 million for the New Mexico Department of Health.
The $25.7 million increase includes increased funding of $6.3 million for early intervention services in the Family Infant Toddler Program.
$7 million in funding is earmarked to get more families on the Developmental Disabilities Waiver and enrolled in the program.
The $25.7 million increase also includes $1.5 million for the supportive services waiver and $500,000 for receivership funding to assist struggling health care providers and increases funding for staff to ensure health facilities are properly surveyed.
$27 million is proposed for Centennial Care enrollment and utilization growth.
The proposed budget includes $8.1 million to cover the projected base enrollment shortfall in FY 2019.
The enrollment growth is expected to be an additional 28,000 New Mexicans eligible for Medicaid but not enrolled.
One of the cruelest things that Governor Martinez did as Governor was ordering an “audit” of mental health services alleging fraud by nonprofits in New Mexico which devastated New Mexico’s behavioral health system.
In early 2016, at least 13 of the 15 nonprofits that were shut down were exonerated of fraud by New Mexico Attorney General Hector Balderas the damage had been done to the nonprofits and many just went out of business.
Three of the five Arizona providers brought in by Governor Susana Martinez’s administration in 2013 to replace the New Mexico nonprofits pulled up stakes in the state and the mental health system as yet to fully recover.
$300,000 is being proposed in HSD’s Behavioral Health Services Division base for Enhanced Care Coordination with 16 group health homes across the state with the funding for the accreditation of the group health homes to comply with Medicaid.
$300,000 is included for the Corrections Department for the increase in the behavioral health contract for inmate healthcare for a total contract amount of $2.6 million.
ECONOMIC DEVELOPMENT AND JOB CREATION
According to the Governor’s executive budget summary, “in order to tackle high poverty rates, spur robust job creation, and put an end to the brain drain” the proposed budget includes significant investments in the areas of employer recruitment and retention with emphasis on the following expanding sectors:
1. The Film and television industry
2. Intelligent manufacturing
3. Sustainable and green energy
4. Cybersecurity aerospace
5. Sustainable and value-added agriculture bioscience
6. Tourism in relation to our outdoor economy
$11 million for New Mexico’s Job Training Incentive Program (JTIP) is being proposed.
A particular emphasis will be placed on creating job opportunities in rural areas of New Mexico.
Funding in the amount of $75 million is included in the capital budget for “Local Economic Development Act” projects for the recruitment and retention of economic base jobs and an economic development “closing fund” that is intended to help lure out-of-state businesses to New Mexico.
An additional $6 million in funding is included for tourism marketing with an emphasis on promoting the outdoor economy to compliment a new outdoor recreation office to be established within the Economic Development Department.
The states advertising and marketing budget will go from $11 million to $17 million and no doubt will increase tourism that will stimulate local economies.
Other programs funded include:
$1.3 million for “Main Street” project programs
$140,000 for trade offices
$500,000 for the Office of Science and Technology with an additional $300,000 for the Science and Technology Research Collaborative,
$230,000 to support business incubators in rural areas and small towns, and funds to reduce the vacancy rate in the Economic Development Department specifically to improve services in rural areas.
ELIMINATING FILM INDUSTRY CREDIT CAP
Governor Lujan Grisham wants the legislature to eliminate the cap on film tax credits to unleash and support the burgeoning film industry in New Mexico.
Under the proposed budget 2019-2020 budget, $300 million in one-time funding is being proposed to pay off a backlog in state film subsidies.
In 2017, there were 74 different film production projects that claimed every cent of the $50 million in incentives.
According to a 2017 report from the New Mexico Film Office, the state spent the entire $50 million allotted for film tax credits annually in 2014.
Between 2010 and 2014 the film industry spent an estimated $513.9 million purchasing goods and services from local businesses
Between 2014 and 2017, the amount of direct, in-state production spending increased from $162 million to $506 million.
New Mexico has received more than $234 million in direct spending into the economy from film projects in the 2017-2018 fiscal year.
In the fiscal year 2017, there was nearly $506 million in direct spending into the New Mexico economy.
CAPITAL OUTLAY PROJECTS
New Mexico’s infrastructure needs continue to outweigh available funding.
However, this year New Mexico is projecting a large surplus of $1.1 billion that could be used for one time capital outlay projects.
Governor Michelle Lujan Grisham’s priorities for capital outlay funding are focused on improving infrastructure at state facilities and supporting economic development in New Mexico
by focusing on roads, bridges and rail, and improving access to broadband.
State agencies submitted a total of $543.4 million in requests, requests for senior citizen facilities totaled $28.7 million, and higher education institutions, special and tribal schools totaled $125.6 million, for a grand total of $697.7 million to address statewide needs.
The state also has severance tax bonding capacity available totaling $236.9 million to address infrastructure and capital projects throughout the state.
The largest single category of use for senior Severance Tax Bonding capacity by the Legislature is for local capita projects, followed by higher education institutions, and last state agencies.
Funding has been included for solar charging stations throughout the state and the purchase of electric vehicles.
As part of their overall purchases of state vehicles, the Governor Lujan Grisham has instructed Executive Agencies to prioritize electric vehicle purchase.
Governor Lujan Grisham continues to be a leading advocate for senior citizens in the state.
This year’s capital budget recommendation includes funding for senior facilities, meals equipment, and emergency repairs at senior facilities statewide.
STATE PENSION PLANS
Over the last year, it has been reported that the state’s two major pension funds Educational Retirement Board (ERB) and the Public Employees Retirement Association (PERA) are in serious financial trouble because of long term liabilities of benefits to paid retirees that will exceed by the billions that are available.
Both retirement systems have asked for a one-time infusion of funds, but the New Mexico legislature has resisted it as not being a truly viable solution to the problem.
In 2013, the New Mexico legislature tackled pension reform but the changes made have not been enough to make the pensions fully solvent.
PERA pays pensions to more than 40,000 retirees and also has a public employee plan for about 49,000 active members.
A shrinking government workforce as a result of government cuts and a sluggish economy has dragged down New Mexico’s largest pension program.
It is estimated that between 4,000 and 5,000 state government employee vacancies and eliminated positions have 0ccured over the last 8 years.
Despite changes enacted in 2013, PERA’s estimated unfunded liability which is the gap between future retirement benefits owed and expected future assets on hand, has increased over the past four years to $4.8 billion from $4.6 billion.
Decreases in the ERB’s expected investment returns and inflation calculations have caused the system’s unfunded liability to rise to $7.4 billion, an increase of more than $1 billion since 2014 and its funded ratio to drop to 61.5 percent.
The ERB pension fund is not expected to reach 100 percent funded status for 84 years or until the year 2100.
The Lujan Grisham budget seeks to shore up New Mexico’s two major pension funds by increasing how much the state pays into workers’ retirement accounts with an approximate amount of $13.7 million.
The budget plan does not call for any additional lump sum payment into either the Educational Retirement Board or the Public Employees Retirement Association.
OTHER MAJOR BUDGET HIGHLIGHTS
Under the Governor’s proposed budget, all state employees will receive salary increase under the proposed budget.
The Recommendation includes tiered salary increases of 4%, 3%, and 2% for those making less than $25,000, $25,000 to $50,000, and over $50,000, respectively
A $12 minimum wage for all state employees and public-school workers and salary increases for all state workers.
In the November, 2018 general election, New Mexico voters overwhelmingly approved a new independent ethics commission.
The Governors submitted budget in November earmarks $500,000 for the new Ethics Commission and the 2019 legislature must pass enabling legislation for the money to be appropriated.
TACKLING THE TAX CODE
Both New Mexico Senate and House legislative leadership have said for some time there is a need to overhauling New Mexico’s tax code.
With the election of a new Democrat Governor, it makes it more likely that it will happen in one form or another during the upcoming legislative session or even the next.
Lujan Grisham’s budget plan calls for several tax-related changes including tax collection on internet sales, imposing the state gross receipts tax on not-for-profit hospital services and imposing a state tax on electronic cigarettes.
Lujan-Grisham is also proposing reinstating an expired solar tax credit and expanding an existing tax break for working families.
If all the tax code charges are enacted, they would represent a net tax increase of $35 million in the coming year.
COMMENTARY AND ANALYSIS
Now the hard part begins to get the proposed budget passed by the New Mexico legislature convening on January 15, 2019.
Democrat and Republican fiscal conservatives are already complaining about the budget increases.
Democrat State Senator John Arthur Smith, the chairman of the powerful Senate Finance Committee, said much of Governor Lujan Grisham’s budget recommendation are in line with a separate Legislative Finance Committee plan that will be announced before the start of a 60-day session on January 15, 2019.
However, Senator Smith still voiced concern about the possibility of a state revenue slowdown and the fiscal impact of the proposed $12 minimum wage for all state employees and public-school workers that the Governor wants by saying:
“I’m concerned their cost estimates on that are a little weak.”
House Republican Minority Whip Rod Montoya had this to say:
“What we don’t want to do is go beyond what’s responsible. … Somebody has to urge a little bit of caution.”
Commenting on the increase spending, Governor Lujan Grisham had this to say:
“For the first time in many years, our revenue projections are showing significant growth and an unprecedented amount of new money is available to invest back in our state.
Notwithstanding the 12.7 % increase in spending, Governor Michelle Lujan Gresham’s proposed first budget is fiscally prudent and responsible because it calls for $1.8 billion, or 25% of state spending, to be set aside in cash reserves in case the projected revenue from oil and gas production for the coming fiscal year don’t materialize.
Governor Michelle Lujan’s proposed budget signals a dramatic departure from the previous 8 years of downsizing government by Governor Martinez in order to avoid any and all tax increases at all cost which has resulted in a major impact on essential services.
Governor Michelle Lujan Grisham can take pride in the balance budget she has submitted.
The budget is indeed a reflection of someone who understands how government works.
More importantly, the proposed budget is a reflection of someone who understands the needs of the people of New Mexico and who is fully committed to getting things done.
Its a new day in New Mexico and today the sun is shining again.
The state’s fiscal year begins July 1, 2019.
On January 14, 2019, the New Mexico Legislative Finance Committee released its budget plan.
The budget plan would increase year-over-year state spending by $670.8 million, or by 10.6%, as opposed to the Governor’s $806 million, or 12.7% increase.
The committees budget would earmark more than three-fifths of the additional spending toward public schools statewide.
There are two major differences with the Legislative Finance Committee budget plan and the budget plan released by Governor Michelle Lujan Grisham.
The legislative budget does not appropriate an estimated $300 million to pay off a backlog in state film subsidies, an action that Lujan Grisham has proposed, and does not with eliminate the an annual cap on film subsidy spending as the Governor has proposed.
In addition, the Democratic Governor Lujan Grisham has proposed earmarking $75 million for a state “closing fund” that’s intended to spur economic development by luring out-of-state companies to New Mexico and the Legislative Finance Committee budget plan only includes $4 million for the program.