On January 18, the 2022 New Mexico legislature convenes for its 30 day legislative sessions known as the “short session.” Thirty-day sessions are dedicated to enactment of the annual budget and financial issues with the fiscal yeas beginning on July 1 and ending June 30. The agenda is set by the Governor, it is referred to as the “Governor’s Call”, meaning the Governor dictates was legislation can be considered other than fiscal matters.
Prior to the beginning of any legislative session, the Governor prepares and releases a proposed budget for the new fiscal year. The New Mexico “Legislative Finance Committee” (LFC) has its own staff and economists, conducts hearing during the year and also prepares a proposed budget before any session begins. Taken together, the Governor’s Budget and the LFC budget provide a road map for compromise and consensus during the legislative’s sessions.
On Friday, August 28, during a Legislative Finance Committee (LFC) meeting it was revealed that the State is experiencing an all-time high windfall of more than nearly $1 billion higher than what was projected in February of 2021. The August estimates released to the legislative committee by executive and legislative economists projected that New Mexico would have nearly $1.4 billion in additional money in the coming year. The $1.4 Billion is the difference between expected revenue and the state’s current $7.4 billion budget. The cause of the windfall is surging oil and natural gas production and a rise in consumer spending.
The new state government income forecast has been revised upward by more than $200 million since August. On December 6, 2021, New Mexico government economists projected a new surge in state income predicting a $1.6 billion surplus in state general fund income in excess of current spending obligations for the fiscal year starting on July 1, 2022.
State Secretary of Taxation and Revenue Clarke said economist have reported New Mexico’s economy has recovered about two-thirds of the jobs that were lost at the outset of the pandemic in 2020 but cautioned:
“We still have a big percentage of our population that is in a difficult financial situation. … We see the stock market doing so well. … I just want us not to forget that there is a whole sector of the economy that has not experienced those gains.”
COMPETTING BUDGETS RELEASED
On Thursday, January 6, 2022, Governor Michell Lujan Grisham and the Legislative Finance Committee released their separate competing state budgets for the 2022-2223 fiscal year. With the projected $1.6 Billion projected windfall, both of the proposed budgets increase total budgetary spending to $8.4 billion and provides 7% salary increases for teachers and state employees. In the Governor’s proposed budget of $8.4 billion, education accounts for more than half of it at $4.8 billion.
In addition to funding the states essential services, both the Governor’s and the LFC proposed budgets call for upwards of $2.6 billion, which is 30% of state spending, to remain in cash reserves in case projected revenue levels don’t materialize. The reason for setting aside so much in cash reserves is due to a 2017 law that has bolstered New Mexico’s “rainy day” fund by taking a certain percentage of oil and gas tax revenue in cash-flush years and setting it aside for future use, which has now paid off significantly.
Both budget proposals call for significant overall spending hikes. The governor’s proposed budget increase spending levels by $998 million or by 13.4% over current spending. The Legislative Finance Committee’s plan increases spending by more than $1 billion, or by 14%.
The $8.5 Billion budget is the largest budget ever proposed in state history. Both budgets increase government spending levels by upwards of $1 billion over the fiscal year that ends June 30. Both plans represent nearly a 50% state spending growth over the last 10 years.
Both budget plans provide more money to hire additional law enforcement officers, reduce a waiting list for a state program for individuals with developmental disabilities and expand early literacy initiatives. Other increases in funding will target replacing one-time funding for Medicaid spending that will expire in April 1, 2022.
COMPARING THE BUDGETS
Budget plans by the Legislative Finance Committee and the Governor’s Office are similar in many ways but do contain some major differences. Those similarities and differences are as follows:
HIGHER PAY FOR PUBLIC SCHOOL TEACHERS
Under Governor MLG’s proposed budget, upwards of $277 million will go toward raising starting teacher pay in New Mexico to $50,000 annually. Education personnel would see a 7% increase in salaries. The minimum pay levels for more experienced educators would be raised and the Governor’s budget also provides salary increases for teachers and school administrators Teachers in the three-tier system would see a 20% bump, earning $50,000, $60,000, and $70,000 in base salaries
The LFC proposed budget sets starting teacher pay at $1,000 more at $51,000 per year but the $1,000 in additional teacher pay would be for a longer school year.
The Governor’s spokesperson Nora Meyers Sackett said the new salaried will be the highest teacher salaries of any neighboring states and said:
“… [I’ts] really important to both focus on attracting new excited New Mexico students to the profession, attracting teachers to New Mexico and retaining the wonderful hardworking qualified teachers we have in our schools right now.”
Meyers Sackett said teachers have told the Lujan Grisham Administration the new funding will help teachers make new decisions in their life and she said:
“… they love teaching! They want to do it! They love the impact they make but they just want to be able to get by a little better.”
Ellen Bernstein, Albuquerque Teachers’ Federation president, had this to say about the efforts to keep more teachers by increasing pay:
“I think it’s a great start and I think we need to pay attention to that because we have massive shortages … We are down over 1,000 teachers statewide and it’s getting worse every day. … We need to have respect and respect is shown in many ways and a decent salary is one. … We need to recruit people into the profession which means it needs to be a respected profession and we need to retain the people we have.”
Bernstein also said she would like to see a higher raise for school staff, like bus drivers, counselors, and cafeteria workers.
In addition to the $200 million for raises, Governor MLG proposed budget includes $195 million to expand Pre-K capacity, $86 million to make tuition free college available to more New Mexicans, $11 million for early literacy programs for k-12 students, and upwards of $10 million to help teachers pay for college.
TEACHER SHORTAGE CRISIS NOTED
On October 9, 2021, according to a report by New Mexico State University’s Southwest Outreach Academic Research Evaluation and Policy Center, the number of teacher vacancies throughout the state has nearly doubled in the last year. The report found that the number of teacher vacancies rose from 571 in 2020, to 1,048 in 2021. According to data latest year, there was an 84% increase in total teachers needed in 2021. The report also noted that the areas with the highest number of teacher vacancies are special education and elementary education, which were also the top areas in the prior two reports.
It was been reported in September that the Albuquerque Public Schools is having difficulty filling hundreds of jobs. APS has over 300 open positions including:
• 83 elementary school teacher positions
• 48 middle school teacher positions
• 27 high school teacher positions
• 158 special education teacher positions.
In September, 2021, APS reported it had 650 substitute teachers they said they could use another 500 more substitute teachers.
In September it was also reported Rio Rancho Public Schools had less than 100 positions from teachers to educational assistants. They typically have around 300 active substitutes right and in September they reported having 210.
The link to quoted news source material is here:
HIGHER PAY FOR STATE WORKERS
Under the LFC’s proposed budget, state workers would be given a 3% salary increases in April followed by an additional 4% pay raise starting in June. The governor’s budget plan earmarks enough funding to boost state worker pay enough to establish a $15 minimum wage for state employees. On January 6, 2022, Governor MLG’s Fiscal Year 2023 Executive Budget summary states that $52.4 million was being set aside for the raises.
PUBLIC SCHOOLS PROPOSED BUDGETS
The LFC is proposing a $3.82 billion total budget reflecting a 12% increase.
Governor MLG is proposing a $3.8 billion total budget reflecting an 11.5% increase.
The LFC proposed budget would require all New Mexico schools to provide an additional 10 instructional days during the coming year, though districts would have some flexibility in how to implement the mandate. The governor’s proposed budget provides additional funding for extended learning in an attempt to address academic losses during the COVID-19 pandemic, but allows districts to decide whether to seek out the funding and participate.
Under the LFC proposed budget, spending increases in education are targeted at restoring public services impacted by the COVID-19 pandemic, including training new teachers and trying to keep more educators from leaving amid a recent 40% jump in teacher retirements.
REVISITING LANDMARK EDUCATION CASE YAZZIE V. STATE OF NEW MEXICO AND MARTINEZ
Given the magnitude of the increase public education, a reminder of the reason for it is necessary.
On Friday, July 20, 2018, Santa Fe District Court Judge Sarah Singleton ruled in the case of Yazzie v. State of New Mexico and Republican Governor Suzanna Martinez that the state of New Mexico was violating the constitutional rights of at-risk students by failing to provide them with a sufficient education. In a 75-page decision, the court rejected arguments by Governor Susana Martinez’s administration that the education system is improving and for that reason it does not need more funding.
The Court found that the New Mexico Public Education Department (PED) did not do the best it could with the funding it has given by the legislature to the education system. The Court ruling centered on the guaranteed right under the New Mexico Constitution to a sufficient education for all children. The lawsuit alleged a severe lack of state funding, resources and services to help students, particularly children from low-income families, students of color, including Native Americans, English-language learners and students with disabilities.
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, at the time, 71.6% of the state’s public school students come from low-income families, and 14.4% are English-language learners. Further, 14.8 percent of students have disabilities, and 10.6 percent are Native American. Judge Singleton addressing proficiency rates for Native American students said that in the previous 3 years, those students’ reading proficiency was at 17.6% and their math proficiency was at 10.4%.
Randi Weingarten, president of the American Federation of Teachers, provided the following statement after the court ruling:
“This ruling confirms what parents and educators know—that New Mexico children are deprived of the essential resources, including qualified teachers and support staff, they need. This deprivation is especially severe for those at risk and in need of additional supports—English language learners, Native American students and those in poverty. The ruling also calls out the governor’s obsession with testing over teaching.”
“In New Mexico, it would take $228 million to get public school funding to what it was before the Great Recession, and average teacher pay in the state is nearly 10 percent lower than what it was in 2009. We call on the state to use this ruling as a long-overdue opportunity to overhaul its broken school funding system to ensure all New Mexico children are afforded the public education they deserve and are entitled to. … “
The ultimate result of the court ruling is that the State has been ordered to increase funding to public school educations by millions. The Department of Education is till struggling to implement a plan to improve the education system with the case still pending.
HIGHER EDUCATION PROPOSED BUDGETS
The LFC is proposing a $935.5 million budget reflecting a 4.6% increase.
Governor MLG is proposing a $1 billion budget reflecting a 13% increase.
The governor’s proposed budget appropriates $85 million for an “opportunity scholarship program” to cover tuition costs for an additional 22,000 New Mexicans attending higher education institutions. Lawmakers have criticized the program because it is not based on financial need. The LFC’s proposed budget provides only half that much money for the scholarship program.
DEPARTMENT OF PUBLIC SAFETY PROPOSED BUDGETS
The LFC is proposing a $143.7 million budget reflecting a 10.8% increase.
Governor MLG is proposing a $139.8 million budget reflecting a 7.8% increase.
The LFC proposed state funding cuts for the Corrections Department by about $1.6 million as a result of the recent drop in New Mexico’s prison inmate population. The governor proposed spending plan slightly increases funding for the agency.
The Governor’s proposed budget provides funding for the Department of Public Safety to add 100 state police officers to its ranks. According to the Governor’s office, the increase of a little over $10 million would be enough to fill every current officer vacancy. According to the LFC, even without the additional funding, the department is projected to add 57 officers.
According to the LFC, the Department of Public Safety requested an additional $29.4 million beyond last year’s funding,. The department intends much of the funds to go to increasing pay and expanding training. The LFC proposed budget has funding for only a $12.8 million increase, $2 million of which would go to expanded training. The LFC predicts that such funding would allow the department to add 79 officers.
Charles Sallee, the Deputy Director for Budget at the LFC, had this to say:
“Rather than fund positions that are unlikely to be filled because the economy is at near full employment. . . the LFC recommendation prioritizes both across-the-board pay increases, as well as targeted increases for hard-to-staff positions, like state police officers.”
The LFC is recommending adding fewer new staff than the Governor recommends.
The link to quoted news source material is here:
Under the Governor’s released Fiscal Year 2023 executive budget recommendations, $100 million was earmarked for a new fund to recruit, hire and retain 100 law enforcement officers and staff around the state and $14.6M to provide raises and longevity pay to New Mexico State Police officers. Further, $18.2 million is earmarked for local fire departments to purchase equipment, boost recruitment and upgrade facilities
FUNDING TO REGULATE NEW CANNABIS INDUSTRY
Legalization of recreational cannabis in the state occurred last year. Both the Governor’s and the LFC’s proposed budgets proposals allocate funding for the newly created Cannabis Control Division (CCD) that will oversee and regulate the state’s recreational and medical cannibus industry. Both budgets aim to provide staffing to the CCD.
The CCD has asked for 69 additional employees. The LFC recommends only funding 19. The governor’s proposal provides funding for 35 new staff within the department.
The staffing increases would double the current number of full-time staff at the CCD. Victor Reyes, the deputy superintendent at the New Mexico Regulation & Licensing Department, which oversees the CCD, says that additional funding will help the state regulatory department better serve customers and business owners within the cannabis industry. Reyes had this to say:
“Now that we’ve established our rulemaking process and we’ve begun the infrastructure for licensing, we need to have additional staff members to better serve the public [and] make sure that we are making customer service a priority. … “We know that both the executive and the legislative branches of government are committed to the success of this program. That’s why they passed this law. That’s why they gave us that initial support that we needed to be successful.”
The link to quoted news source material is here:
FILM INDUSTRY FUNDING
“With the expansion of Netflix in New Mexico and more than $2 billion spent in the state, New Mexico’s film industry seems to be one that’s continuing to grow. But the COVID-19 pandemic also hit the industry hard.
The governor’s budget proposal aims to create a “Media Academy” that would help local students enter the film industry. The idea is not to make a new school, but to use $50 million in funding to support film-focused higher education in the state. The end goal, according to the budget recommendation, is to enroll 1,000 students each year in film-focused training.
In addition, the governor’s budget recommendation would add over half a million dollars to the New Mexico Film Office’s budget. That organization is in charge of making New Mexico attractive to would-be production companies. The LFC budget recommends not providing additional funding to the film program in the fiscal year 2023.”
The link to quoted news source material is here:
REACTION TO RELEASED BUDGETS
Governor MLG had this to say in a statement:
“These are investments that take us beyond the status quo, beyond decades of unnecessary austerity – these are investments that carry our state and its people into a future that lifts up every New Mexican.”
Democratic leadership lawmakers said the spending increase, although high, are still financially prudent. Both the Governor’s and the LFC proposed budgets call for upwards of $2.6 billion, which is 30% of state spending, to remain in cash reserves in case projected revenue levels don’t materialize.
State Rep. Patricia Lundstrom, D-Gallup, the LFC’s chairwoman said:
“At this point, we feel it’s just right [to increase spending]. ”
Senate Finance Committee Chairman George Muñoz, D-Gallup stated:
“New Mexico has the opportunity for generational change with the amount of money we have.”
Conservative Republican House Minority Leader James Townsend, R-Artesia, not at all surprisingly rebuked the governor’s proposed budget. In a prepared statement, Townsend said, in part:
“What usually gets lost in the Governor joyously announcing she is handing out cash to anyone and everyone during an election year, is that this money comes from the oil and gas industry that she, her out-of-state donors, and many progressive legislators want to shut down. … I think every one of us should be concerned about the sustainability of these spending levels.”
Townsend added that some of the state’s revenue bonanza should be used to lower tax rates on senior citizens and veterans.
The windfall in revenues could allow for a cut in tax rates or rebates for taxpayers, though such proposals would have to be approved in separate bills.
In addition to state funds, lawmakers also have roughly $728 million in federal pandemic relief funds that New Mexico received last year but has not yet allocated.
GOVERNOR’S PLAN TO CUT GROSS RECEIPTS TAXES
On Nov 17, 2021, Gov. Michelle Lujan Grisham announced that she would pursue a statewide cut in gross receipts taxes. It would be the first in decades and was part of her signature legislative agenda items for the upcoming 2022 session. According to the Governor’s office at the time it was announce, it will save New Mexico families and businesses an estimated $145 million annually, or about $1.5 billion over 10 years.
The governor’s initiative will comprise a statewide 0.25% reduction in the gross receipts tax rate, lowering the statewide rate to 4.875% . This would be the first change in the statewide gross receipts tax rate since July of 2010, when the rate increased from 5% to its current 5.125 percent. According to the Taxation and Revenue Department, New Mexico has not decreased its statewide gross receipts tax rate since 1981, making the governor’s proposed cut, when enacted, a first in 40 years.
The tax cut, if successful, would reduce by one-quarter of a percentage point off the statewide rate, or enough to save a family 25 cents on a $100 purchase.
New Mexico’s gross receipts tax is similar to a sales tax but also applied to the sale of services, not just goods. The gross receipts tax has been a focus of debate for decades. The tax is problematic for small businesses, experts say, because they must pay it when hiring outside help for accounting, legal or other services a cost that builds on itself with each transaction, eventually passed on to the consumer.
Republican State Senator William Sharer, R-Farmington and Rep. Jason Harper, R-Rio Rancho, have repeatedly proposed overhauling the gross receipts tax code and reducing the rate. Sharer said the governor’s proposal was too small to make a real difference and said:
“While it may be a step in the right direction … it’s not tax reform. … [It] doesn’t amount to anything but a talking point.”
COMMENTARY AND ANALYSIS
The Governors’ proposal of statewide 0.25% reduction in the gross receipts tax rate appears to be more of an election year ploy to garner favor with the anti-tax crowed. The tax cut if successful, would reduce by one-quarter of a percentage point off the statewide rate, or enough to save a family 25 cents on a $100 purchase. What the state really needs is real tax reform and not a talking point. To that end, the tax cut should be abandoned for the 2022 thirty day session.
The emphasis of increasing funding for education should come as absolutely no supervise to anyone. Both the Governor and the Legislature have no choice because of the landmark case of YAZZIE V. STATE OF NEW MEXICO AND MARTINEZ. The state’s education department is still operating under a district court mandate to increase funding after the ruling from 3 years ago found that the state was failing badly to provide and education to students.
Now that both the governor and the LFC have released their individual proposed budgets before the 2022 session, the hard part begins ironing out the differences. Both Senate and House committees will analyze, discuss, debate and modify the bill before both the House and Senate vote on the adjusted version and enact what is the General Appropriations Act. Once it’s approved by a majority vote, it heads to the governor’s desk for a final signature. However, the Governor still has line-item veto power over the bill.
Notwithstanding the debate and compromising that remains, the 2022 legislative session will be far easier than the past few sessions that required dramatic budget cuts and a special session. With the availability of $1.6 Billion in new revenue, there should be very little problem.
Some critics and political pundits are saying that the budgets do not go far enough to fully utilize the the state’s windfall to make transformative changes and investment. Such arguments reflect a certain level of ignorance of the state budget process. Both of the proposed budgets are the operating budgets for government. The appropriate concentration should should be for now to maintain funding for basic government services. Once the operating budget is resolved, there is ample time to address transformative infrastructure projects and programs. More importantly there will be money to to just that.
Transformative programs and projects should include more funding for mental health care services, drug addiction and intervention programs, and funding for programs to help the homeless including funding to complete Albuquerque’s GATEWAY facility for the homeless. Additional funding and changes in the laws to help local law enforcement deal with the states spiking crime rates could be added. There should be enough also for major infrastructure and capital outlay projects such as funding for a new soccer stadium and building a multi purpose venue to replace the aging Tingly Coliseum.
With $3.7 billion In Federal Infrastructure Investments and Jobs Act Funding, the allocation of $478 million in federal pandemic aid out of $1.1 Billion in pandemic relief and the $1.6 billion of projected windfall from oil an gas revenues, the state’ s decades long financial woes may finally be coming to an end. The next 4 years of government expenditure of billions may prove to be a once in a lifetime opportunity to diversify the state’s economy.
The link to a related blog article is here:
Governor Lujan Grisham Delivers On $478 Million In Pandemic Relief; $3.7 Billion In Federal Infrastructure Investments And State’s $1.6 Billion Surplus Once In A Lifetime Opportunity For Governor Running For Second Term; Concrete Results Versus Republican Smear Tactics