Governor MLG Signs $7.6 Billion Budget With $149.5 Million In Vetoes; Nation And State Turn To Boosting Economy As Pandemic Gets Worse; Call Special Session: Repeal Enacted Budget, Enact “Zero” Growth Budget, Allocate More Money From Permanent Fund

On February 20, the New Mexico legislature within a few hours before adjourning enacted a $7.6 Billion dollar budget for the fiscal year that begins on July 1. It raised annual spending by $536 million, or by nearly 8% over last year’s budget. The increase in spending was a result of record-breaking oil production in the Permian Basin with the state anticipating at least an $800 million increase in state government income during the coming budget year. The legislature also enacted a separate $49.5 million in capital outlay projects.

The increase spending of $536 million includes funding for Governor Lujan Grisham’s major priorities. An Early Childhood Trust Fund of $320 million was approved with the goal of putting $30 million annually toward the cause of early childhood programs needed for many years. The new budget includes $17 million for the new college scholarship program sought by Lujan Grisham which is much less than the Governor had initially requested.

The goal is to provide need-based tuition aid for full-time students who already qualify for a separate, lottery-funded scholarship program. The Governor supported the Public Employees Retirement Association (PERA) reform legislation that is aimed at erasing the state pension system’s $6.6 billion unfunded liability. The new budget allocates $76 million to help improve the financial health of the pension funds.

Just when things were looking great with respect to oil and gas royalties to finance state government, BAM the corona virus hits, a global oil price war ensues, and New Mexico gets hit in the process, all within one month since the adjournment of the New Mexico legislature. The global oil price war has hit hard the state’s revenue boom and it has caused the state budget surplus to evaporate. The New Mexico Legislature’s finance analysts had pegged oil prices for the budget year that ends in June to average $52 per barrel. The price of oil per barrel has now plummeted to $33.19 dollars a barrel.


On March 10, Governor Michelle Lujan Grisham vetoed the $49.5 million capital spending bill citing the financial crisis over the loss of revenues. On March 11, due to concerns over plummeting oil prices and the impact of the coronavirus, Lujan Grisham signed into law the $7.6 billion spending plan but not before exercising her line item veto power. The Governor line item vetoed more than $100 million worth of projects from an accompanying public works package.

Among the projects vetoed by Lujan Grisham were proposed school improvements, tribal building repairs, road renovations, street signs and renovations to a Family and Community services building in Albuquerque. On March 11, the Governor announced that 3 cases of corona virus had been found in New Mexico, all three-travel related. As of March 17, a total of 23 cases have been confirmed and many more are expected.

In her veto message of the capital outlay projects, Governor Lujan Grisham said:

We do not yet know the degree to which [the coronavirus] and declining oil prices will impact our state’s economy. … Given this uncertainty, I bear a heightened obligation to ensure that all significant expenditures constitute a demonstrably sound investment in New Mexico.”

According to the Governor’s Office the combined savings will amount to roughly $150 million in order to have more money available in cash reserves in the event projected revenue levels do not materialize.


According to the Legislative Finance Committee (LFC), a $1 change in the average annual New Mexico price of oil has an impact of roughly $22 million on the state general fund. The LFC also said money generated from taxes and royalties on oil and natural gas accounted for roughly 36% of New Mexico’s total revenue for last year. For the enacted budget, oil prices were projected to average $50 per barrel.

According to the Governor’s Office, if oil prices were to hover at $30 per barrel through June, that would mean $138 million less in state revenue than projected for this fiscal year. Upwards of 25% of the state’s spending contained in its budget is for reserve funds

The Governor had until March 11 to sign off on the state’s $7.6 billion budget bill for the fiscal year that begins July 1. The state budget crafted and enacted by the 2020 legislature is heavily reliant on the historical oil and gas generated surplus revenue. The new budget contains a $536 million increase in spending over last year’s budget. By law, the New Mexico Legislature must enact a balanced budget. Deficit spending is strictly prohibited.

Between the veto of the $49.5 capital improvements and the line item vetoes of $100 Million in the budget means more money will be available in cash reserves in case projected revenue levels do not materialize. The state is estimated to have $1.7 billion in cash reserves when the current budget year ends in June. The $1.7 billion cash reserve figure could end up being much lower if oil prices do not rebound.

Republican lawmakers accused Lujan Grisham of putting her initiatives above the state’s aging road infrastructure with her budget line item vetoes, even though the budget she signed includes $180 million for statewide highway construction and repairs.


As financial analysts warn the country is surely entering a recession, the Trump Administration is grappling with the enormous political undertaking with echoes of the 2008 financial crisis. On March 17, President Trump pressed for enactment of a $1 trillion stimulus package, possibly to include $1,000 direct payments to individual Americans, to blunt the economic impact from the coronavirus outbreak.

Under the plan, high wage earners might not qualify for payments, which could be sent within the next two weeks, according to Treasury Secretary Steven Mnuchin. Trump asked Congress to speed emergency checks to Americans, enlisted the military for MASH-like hospitals and implored ordinary people, particularly socially active millennials, to do their part by staying home to stop the spread of the coronavirus.


On March 17, the Administration of Gov. Michelle Lujan Grisham announced expanded expanded economic relief plans. The administration made it known that even more drastic action may be taken as the corona virus pandemic continues to take its toll on the states economy.

According to Workforce Solutions Secretary Bill McCamley, the state has put on hold job search requirements for unemployment benefit recipients, launched new business loan programs and is pursuing other possible steps. McCamley said his agency received about 4,000 phone calls from New Mexicans seeking to file for unemployment benefits, or extend their benefits in just one day.

The state has issued a directive requiring that bars and restaurants operate at no more than 50% of capacity and the directive is expected to have a direct impact on the restaurant and hospitality industry and contribute to a major surge in unemployment applications. The state has an unemployment reserve fund approaching $465 million and there is no doubt it could be depleted seriously with the doubling and tripling of unemployment application.

According to state officials, the Department of Workforce Solutions has asked President Donald Trump’s administration to activate a “disaster unemployment assistance program” that would allow New Mexico’s estimated 62,000 self-employed residents to access jobless benefits. State leaders are also discussing using money from a roughly $5 billion New Mexico permanent fund to expand a program that provides low-interest loans to businesses.

Governor Lujan Grisham announced several commercial loan programs, including the state participation in a federal Small Business Association disaster program. The program offers loans of up to $2 million and making some of a state “closing fund” for business expansion and relocation available for business loans. On March 17, The Governor issued the following statement announcing New Mexico had become one of the nation’s first to qualify for the federal loan program:

“The state has qualified for the Small Business Administration (SBA) Disaster Loan Assistance program to assist businesses negatively impacted by the COVID-19 public health emergency. . .The SBA is offering low-interest federal disaster loans up to $2M for working capital to small businesses and non-profit organizations suffering substantial economic injury. . .The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible. The interest rate for non-profits is 2.75%.”


On July 1, 2020 the recently enacted state budget by the New Mexico legislature will be going into effect. Given what is going on nationally, in cities and state’s all over the country, it is likely that the effects of the corona virus health crisis will be with us for months, not weeks resulting in a dramatic effect on the State’s economy and its revenue sources. The risk of the state going into the red and spending even more than it has coming in has now increase dramatically.

The 2020-2021 budget of $7.6 billion spending is predicated on an average oil price of $50 per barrel. State spending over the last 2 years is up 20% largely because of the surplus generated by the Permian basin oil boom. The price of oil has now plummeted to less than $30 dollars a barrel and there is no end in sight as to how far it will go and how long it will last. You can bet the price of oil will continue to decline at least as long as the oil price war between Russia and Saudi Arabia continues.

According to the Legislative Finance Committee, a $1 change in the average annual New Mexico price of oil has around a $22 million effect on the state general fund. It is clear even to those who are deficient in math and the multiplier effect that there is a looming financial crisis.


This year, New Mexico’s two largest permanent funds, the Land Grant Permanent Fund and Severance Tax Permanent Fund, funds will pump an all-time high of nearly $1.1 billion into state schools, hospitals and other programs in the coming 2020-2021 budget year that starts July 1. The funding is from investment gains and inflows from taxes and royalties from oil production in southeast New Mexico. But that may change because of the pandemic.

The Land Grant Permanent Fund (LGPF), also known as the Permanent School Fund, is one of the largest funds of its kind in the country, and every year provides more than a half-billion dollars in benefits to New Mexico’s public schools, universities and other beneficiaries . In fiscal year 2020, the Land Grant Permanent Fund generated $784.2 for New Mexico Schools.

For a number of years, many have advocated that upwards of 5% more from the Land Grant Permanent Fund be allocated for early childhood care and education programs. The Land Grant Permanent Fund is often referred to as the rainy-day fund and if there ever was a rainy day in New Mexico, it is now with the historical pandemic. Now is the time to finally divert more money to address the needs of the state with the fund to substitute money allocated in the new budget for the $320 Early Childhood Trust Fund and the $17 million for the new college scholarship program.


Many economists are deeply concerned that the state is headed into another recession. If in fact the state suffers yet another recession, the state economy will need a major stimulus. The $49.5 million in construction capital outlay the Governor vetoed would have been such a good start. Likewise, the $100 million in line item vetos also contained many construction projects that could have help to stimulate the economy.
The Governor’s veto of the capital outlay bill of $49.5 million with the line item veto of another $100 million is no guarantee that it is enough to avoid a state budget crisis, let alone another recession caused by the pandemic.

Although an estimated $1.7 billion in reserves has been set aside, the dramatic decline in oil prices will diminish that with only a fraction of the money accessible without legislative approval in an emergency. The 2020-2021 budget contains $536 million in spending increases that are recurring costs. The $536 million in spending increases include state employee raises such as 4% for teachers and state employees, $76 million to shore up the PERA pension funds, $320 million for Early Childhood Trust Fund, and $17 million for the new college scholarship program. The enacted budget may no longer be fiscally responsible as a result of the dramatic changes brought on the corona virus pandemic and the plunge in oil production.


There is no doubt that the Governor foresees the impending wave of red ink coming her way by virtue of the $149.5 million in veto cuts. Given the impending financial crisis caused by the coronavirus, Governor Lujan Grisham would be wise to confer with legislative leadership and the Legislative Finance Committee and determine if a “Special Session” needs to be convened. There is still time for a Special Session before the enacted budget goes into effect on July 1. Such a special session should not last more than 2 days predicated on a new budget being agreed to and hammered out before the session is called by the Governor.

An option is to repeal the new 2020-2021 budget and enact a zero-growth budget making further cuts in spending and agree to make cuts in the programs the Governor was able to secure as a result of the surplus in oil revenues. Further, many of the vetoes of capital outlay could be re enacted again as a means of stimulating the economy.

If the state in fact plunges into another recession as many predict and deeper than the 10 year great recession that started in 2008, Governor Lujan Grisham will start to look and sound like former Republican Governor “She Who Shall Not Be Named”. Governor Lujan Grisham, unless she acts quickly with a special session working with the legislature, may be force to make drastic cuts, implement layoffs and once again reduce the size of government all during the 2020-2021 budget year resulting in further damage to government services and inflicting more pain on New Mexico residents.

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Pete Dinelli was born and raised in Albuquerque, New Mexico. He is of Italian and Hispanic descent. He is a 1970 graduate of Del Norte High School, a 1974 graduate of Eastern New Mexico University with a Bachelor's Degree in Business Administration and a 1977 graduate of St. Mary's School of Law, San Antonio, Texas. Pete has a 40 year history of community involvement and service as an elected and appointed official and as a practicing attorney in Albuquerque. Pete and his wife Betty Case Dinelli have been married since 1984 and they have two adult sons, Mark, who is an attorney and George, who is an Emergency Medical Technician (EMT). Pete has been a licensed New Mexico attorney since 1978. Pete has over 27 years of municipal and state government service. Pete’s service to Albuquerque has been extensive. He has been an elected Albuquerque City Councilor, serving as Vice President. He has served as a Worker’s Compensation Judge with Statewide jurisdiction. Pete has been a prosecutor for 15 years and has served as a Bernalillo County Chief Deputy District Attorney, as an Assistant Attorney General and Assistant District Attorney and as a Deputy City Attorney. For eight years, Pete was employed with the City of Albuquerque both as a Deputy City Attorney and Chief Public Safety Officer overseeing the city departments of police, fire, 911 emergency call center and the emergency operations center. While with the City of Albuquerque Legal Department, Pete served as Director of the Safe City Strike Force and Interim Director of the 911 Emergency Operations Center. Pete’s community involvement includes being a past President of the Albuquerque Kiwanis Club, past President of the Our Lady of Fatima School Board, and Board of Directors of the Albuquerque Museum Foundation.