On January 17, 2023, the 2023 New Mexico Legislative Session begins its 60 day session. The biggest legislative priority will be passage of the state’s annual budget. The state’s fiscal year begins on July 1, 2023 and ends on June 20, 2024.
On January 10, 2023 Governor Michell Lujan Grisham released her proposed 2023-2024 fiscal year budget submitted to the New Mexico Legislature for the upcoming legislative session. It is a nearly 200-page document.
On January 12, the Legislative Finance Committee (LFC) released it own proposed budget. The LFC budget plan is the final result of months of hearings conducted in communities around the state. It includes funding requests made by the Governor’s Cabinet officials and finance experts used to identify ongoing needs and demands of state government
GOVERNOR MLG’S PROPOSED BUDGET
The Department of Finance and Administration (DFA) released the FY24 Executive Budget Recommendation totaling $9.4B in recurring spending, an 11.9% increase from the last fiscal year. The executive recommendation will maintain reserves at 34.9%, among the highest in state history, while increasing investments in priority areas like housing and homelessness, health care and behavioral health, education and child well-being, public safety, and economic development and tax rebates.
The Governors proposed 2023 state budget plan will use the historic state revenue windfall to increase yearly spending by upwards of $1 billion. If enacted as outlined, the Governor’s proposed budget would represent a nearly 12% increase in spending compared to the 2022 fiscal year that ends on June 30, 2023.
Governor Lujan Grisham’s budget recommendation includes tens of millions of dollars for housing, hundreds of millions for healthcare, hundreds of millions for education, and over $100 million for law enforcement.
The Legislative Finance Committee (LFC) will release its own spending plan the two proposals will be studied as lawmakers build a new state budget for the fiscal year that starts on July 1, 2023.
REBATES AND TAX RELIEF
Under the Governor’s proposed budget, more tax reduction and rebates have emerged for second year in a row as major priority.
Under the Governor’s proposed budget, residents would get tax rebates of $750 per taxpayer. Using the state’s historic state windfall from the oil and gas revenue surplus has received bipartisan support. The rebates would be the second time rebates would be provided for since last year. In 2022, most New Mexicans received three payments total, worth either $250 or $500 per payment. The biggest rational for the rebates is to help state residents to deal with inflation and the high cost of gas, food and other supplies. The new round would cost an estimated $1 billion and rebates would be provided for all New Mexico taxpayers, not just lower-income ones, under the governor’s plan.
The Governor is also seeking changes to New Mexico’s tax code in her proposed budget. The Governor’s tax code changes include reducing the state’s gross receipts tax base rate by an additional 0.25 percentage points. This tax reduction is identical to the one that was enacted last year. However, the governor’s plan does not include a “trigger mechanism” that would automatically undo the tax cuts if projected revenue levels fail to materialize. The tax code changes also include adjusting brackets in the state’s personal income tax code. The tax package favored by the governor could cost the state upwards oof $500 million in lost revenue.
PAY RAISES FOR STATE EMPLOYEES
Under the Governor’s proposed budget, 4% pay raises for all state workers, teachers and other education workers in New Mexico would be funded. The proposed pay raises come New Mexico state government agencies have dealt with high employee vacancy rates attributed to the COVID-19 pandemic. The 4% pay raises would take effect on July 1 and would cost the state an estimated $202.4 million annually.
The governor’s plan calls for $100 million to allocated to cover the cost of health care premiums for education employees. According to Legislative Finance Committee (LFC), starting teachers in New Mexico pay an average of $4,223 per year on health insurance costs as of August 2021. Just last year, New Mexico starting teacher pay was increased to $50,000 per year. The state paying. for educators’ health insurance premiums will no doubt go a long way in attracting new teachers given the fact the state is suffering from a major teacher shortage and skyrocketing health care premiums contribute to the shortage. The proposal to cover health insurance premiums would only apply to educators and not other state workers, but the legislature could change that.
Sen. George Muñoz, D-Gallup, the chairman of the Senate Finance Committee (LFC), said his Committee would be proposing slightly larger salary increases for state workers and teachers than the governor. Muñoz questioned the long-term feasibility of the plan to pay for teacher’s health insurance. Muñoz said this:
“I don’t think we can afford to pick up every teacher’s health insurance. … It’s not sustainable.”
The Governor proposed budget calls for spending infusions in order to extend the school year in New Mexico by up to 10 days annually, expand a college scholarship program, hire more law enforcement officers statewide and create mobile response teams to deal with homeless individuals. Governor Lujan Grisham also included in her spending plan more funding for economic development initiatives and mental health treatment for children held in state protective facilities.
Major highlights from the Governor’s proposed budget recommendation include the following:
HOUSING AND HOMELESSNESS
- $25 Million for rental assistance and eviction prevention
- $13 Million to incentivize development and zoning updates
- $10 Million the state’s Home Ownership Down Payment Assistance Program
- $6 Million for a new comprehensive landlord support program to work directly with landlords to encourage them to use housing vouchers
- $4 Million for “Mobile Homelessness Response Teams” at the Department of Health that would deploy to homeless encampment’s to connect individuals quickly and directly with support services
HEALTH CARE & BEHAVIORAL HEALTH
- $200 Million to establish the Rural Health Care Delivery Fund to expand health care services and build new hospitals in rural New Mexico.
- $28 Million for the Health Professional Loan Repayment Program
- $10 Million for the New Mexicare senior caregiver support program
- $10 Million a full-spectrum reproductive health clinic in southern New Mexico, a promise the Governor pledged in August.
- $5 Million for additional support for alcohol abuse prevention and treatment
- $32.5 Million for graduate medical education programs across the state
- $7.7 Million for nursing programs at New Mexico’s higher education institutions
- $5.8 Million to maintain existing school-based health centers and expand access to more than 25,000 students
EDUCATION AND CHILD WELLBEING
- $220.1 Million for extended in-classroom learning time by increasing the number of minimum instructional hours per year in public schools
- $30 Million to provide healthy universal school meals and to eliminate school meal costs for every New Mexico child
- $2.9 Million to the Children, Youth and Families Department for 60 new protective services staff, to be supported by additional federal matching funds
- $277.3 Million for continued investments in affordable, high-quality child care
- $131 Million to maintain and expand access to high-quality pre-k education
- $40.4 Million for the continued expansion of early childhood home visiting
- $111.1 Million to provide a four percent salary increase for all school personnel
- $100 Million for health care premium costs for public school personnel
- $157.4 Million for the Opportunity Scholarships
- $100 Million continued law enforcement recruitment funding. In 2022, lawmakers approved $50 million for the fund and the money has already been dispersed in two rounds of funding. The city of Albuquerque has use the money it was given to give $18,000 in longevity pay to police officers with 18 more years of experience, not for recruitment.
- $4 Million for Law Enforcement Survivors Benefits
- $4 Million for Firefighter Survivors Benefits
- $2.2 Million to create two hotshot forest fire crews that could be dispatched to fight to fight wildfires within and without state borders
Economic Development & Infrastructure
- $1 Billion in economic relief through tax rebates
- $128 Million improving water infrastructure improvements in part by improving river flows into Elephant Butte Reservoir
- $146 Million for continued statewide broadband expansion
- $35 Million for Local Economic Development Act funding
- $75 Million for the Land of Enchantment Legacy Fund
In a statement issued in conjunction with the release of her proposed fiscal year 2023 budget, Governor Lujan Grisham said this:
“Today, we have a historic opportunity for change in the state of New Mexico. … This budget builds upon the immense progress and success of the last four years, continuing to improve the lives of the people of New Mexico by funding programs, policies and initiatives that we know are working. It also empowers the state to continue to take on new and innovative strategies that are disrupting the status quo, that help our children, our families, our schools, our small businesses and our entire economy to grow and prosper.”
Links to quoted news source material are here:
LEGISLATIVE FINANCE COMMITTEE PROPOSED BUDGET
On January 12, the Legislative Finance Committee (LFC) released its proposed budget for the upcoming 2023 legislative session to compete and be reconciled with the Governor’s proposed budget plan.
The LFC budget calls for spending $9.44 billion from the state’s general fund, a 12%, or $1.04 billion, increase over FY23 planned spending. Reserves would be 30% of planned spending, safely above the levels that served the state well during the plunge in income at the start of the pandemic and with room for additional recommendation for fund transfers and tax changes.
Following are the major takeaways of the LFC proposed budget:
REBATES AND TAX CUTS
The LFC budget plan does not specifically call for rebates or tax cuts but it sets aside up to $1.5 billion for them. This is the identical amount proposed in the governor’s budget blueprint. The LFC budget plan, like the Governor’s plan, earmarks funding for tax rebates and changes to the tax code, including reducing the gross receipts tax rate that’s levied on retail purchases New Mexicans make.
Forty five percent (45%) of the state’s current spending is for education. The LFC proposed budget includes $109 million to expand prekindergarten and $263 million recurring and $261 million nonrecurring more for public schools, primarily for a new K-12 Plus factor in the public school funding formula and school-year calendar changes.
The plan for public education is a total of $4.14 billion, or 6.8 percent more than the current year. In addition to extended school time, the recommendation funds increases for services aimed at students identified as at risk for failure, the educator pipeline, reading interventions, and implementation of the Indian, Bilingual Multicultural, and Hispanic education acts.
The new spending would be used to extend New Mexico’s school year to require a minimum of 1,140 instructional hours per year which is about 190 days of classroom learning. The state’s 89 school districts would have some flexibility to determine how to adopt the requirement.
General fund appropriations for the Early Childhood Education and Care Department would increase by nearly 72% with the additional funding from the constitutional amendment approved by voters in November. In addition to the major expansion of prekindergarten, the spending plan includes $8 million for Home Visiting parent education and support services for new families. Early childhood services would get an additional $70 million from the early childhood trust fund for childcare for infants and toddlers and other child services, including behavioral health.
STATE EMPLOYEE RAISES
The Governor’s proposed pay raises for state employees is 4% pay raises for all state workers, teachers and other education workers in New Mexico. The LFC proposed budget plan released calls for average 5% pay raises for state employees. $328 million is set aside for average pay raises of 5 percent for state and education employees. All state workers would get the same size pay increases, though agencies would have the ability to give larger increases to some employees and smaller raises to others. The LFC proposed budget contains additional funding to increase the employer contributions to the public employee and educator retirement funds. The LFC budget contains targeted salary increases for university faculty, judicial agency staffs, child protective services workers, forensic scientists, and public-school principals in addition to the 5 percent average salary increase for all public employees
HEALTH CARE PREMIUMS FOR EDUCATORS
The governor’s proposed budget plan calls for $100 million to be earmarked to cover the cost of health care premiums for education employees. The LFC spending plan, in contrast, calls for $32 million to be spent to boost the state-paid share of educators’ health care costs, so that employee-paid premiums would align with those paid by other public employees.
Both the Governor’s and the LFC proposed budgets are essentially identical when it comes to Medicaid spending. Both proposed budgets both call for increasing provider rate reimbursements and boosting state spending to offset a possible drop in federal Medicaid funding if a pandemic-related public emergency is lifted. The LFC proposed budget includes $80 million to backfill federal Medicaid spending, which will drop with the official end of the public health emergency.
STATE TRUST FUNDS
The LFC proposed budget calls for $1 billion to be deposited into a state permanent fund the been stymied by funding being diverted to fund public works projects. The LFC plan would allocate upwards of $800 million be used to set up new state trust funds. One such savings account might be an environmental trust fund that could be tapped when New Mexico faces wildfires or other natural disasters. Last year, Lujan Grisham was forced to issue dozens of executive orders authorizing nearly $60 million in emergency funds for firefighting efforts in seven different counties as the two largest fires in state history.
Senate Majority Leader Peter Wirth, D-Santa Fe, said the creation of new state endowment funds could help diversify the state’s revenue base and prepare the state for the possibility of cash-lean future years. As it stands now, 40% of the state’s tax collections are from the oil and natural gas industries.
The major expenditures in the LFC proposed budget worth noting and highlighting are as follows:
- $328 million to provide average 5% salary increases to state workers and teachers
- $109 Million to expand pre-kindergarten programs statewide
- $1 Billion diverted to state Severance Tax Permanent Fund
- Up to $1.5 Billion for tax rebates and enact changes to state tax code
- $82 million to fund expansion of Opportunity Scholarship program
- $197 million to improve state roads and highways. In addition to recurring spending, the LFC proposal includes $1.145 Billion spending for special projects such as roads and information technology.
On December 12, 2022 the Legislative Finance Committee released its Consensus Revenue Estimate for fiscal year 2024 which begins July 1, 2023. It was reported that New Mexico’s revenues have ballooned to historic levels from oil and gas production and consumer spending.
The new estimates released project the state will have an astonishing $3.6 billion in “new” money available for the budget year that starts on July 1, 2023. The term “new money” is the amount that represents the difference between forecasted revenue and current spending levels. The total revenue was forecasted to rise from $9.2 billion in the fiscal year that ended on June 20, 2022 to nearly $10.9 billion for 2023.
During the last two years, New Mexico’s revenue levels have steadily increased due to surging oil and natural gas production. The spike in revenue is expected to continue over the coming year. According to the Consensus Revenue Report the latest projections by fiscal year for the last 2 full years are:
2022 – $9.7 billion, up from $9.2 billion in August
2023 – $10.8 billion, up from $9.8 billion in August
2024 – $12 billion, up from $10.9 billion in August
Links to quoted news source material are here:
REACTION TO SURPLUS
In August, Gallup Democrat Senator George Muñoz called the $2.5 billion in additional revenues a “once-in-a-century” opportunity and said at the time:
“If we want to really change, for once and for all, and keep our commitment to reducing tax rates, lowering the [gross receipts tax and] making New Mexico competitive with other states, this is one of the greatest opportunities we could have. … You can change the complete path of this state … Your phones are going to be ringing off the hook [with demands on how to use the new revenues].”
On December 12, Muñoz had this to say about the $3.6 billion increased revenues:
“With this revenue forecast, there’s an opportunity knocking at our door. … No one in our state’s history has ever had this opportunity.”
When the LFC proposed budget was released, Munoz also said lawmakers should be nervous about the scope of the budget windfall, citing a revenue roller-coaster ride over the last decade that has caused lawmakers to alternate spending increases with budget cuts.
Representative Patricia Lundstrom, D-Gallup, the LFC’s chairwoman, said “The more money there is, the higher the pressure.” She said members of the budget committee resisted the urge to spend money like “drunken sailors.”
Cabinet Secretary Debbie Romero of the Department of Finance and Administration told the LFC that risks exist to the record-high revenue forecast. Those risks include supply chain shortages and the ongoing Russian invasion of Ukraine. She also suggested to limit future spending obligations. She urged lawmakers to target spending during the upcoming legislation session to one-time needs like water projects, rural health care and broadband expansion. Romero said this:
“Those are the once-in-a-lifetime things we should invest in while not growing our recurring budget.”
COMMENTARY AND ANALYSIS
While hundreds of bills dealing with crime, the economy, public schools and more will be filed during the session, the state’s revenue bonanza will be at the forefront of many Roundhouse debates. During the 2023 legislative session, there is little doubt that debate will be hot and heavy on how to spend the historic surpluses.
There is indeed a lengthy list on what the surplus can be spent upon. The list includes:
Major infrastructure needs such as roads and major bridge repair across some of the most rural parts of the state with an estimated cost of $500 million, funding for wastewater projects, dams and acequia projects, the courts, law enforcement and the criminal justice system, funding for our behavioral health care system, job creation endeavors, economic development programs, funding for the Public Employee Retirement funds to deal with underfunded liabilities and benefits are all likely topics of discussion during the upcoming 2023 legislative session. All merit serious consideration and funding with the historic surplus.
Not at all surprising, some lawmakers have called for spending restraint despite the revenue windfall, saying a drop in oil prices and a possible global recession could mean a big drop in state revenue collections within the next several years. Senator Stuart Ingle, R-Portales, the state’s longest-serving legislator, had this to say:
“I think we better be real, real careful. … We just need to make sure we don’t overspend so much that down the road we have to find ways to fund or cut.”
What is also not at all surprising are fiscal conservatives, especially Republicans, calling for tax cuts and rebates. Whenever surpluses in state revenues occur, such as this year especially, Republicans always begin to salivate and proclaim all taxation is bad and that rebates and tax reform are desperately needed and the only way to go.
The Republican tired and old political dogma has always been that tax revenues are the people’s money and anything in excess of what is actually needed over and above essential government services should be returned to the taxpayer. It appears the Governor has bought into the argument. It is a short-sighted philosophy believing that only essential, basic services should be funded with taxpayer money such as public safety. If that were the case, there would be no public libraries, no museums, no zoos, no mass transit expansions and no memorial monuments.
MAJOR CAPITAL OUTLAY PROJECTS SHOULD BE IN THE MIX
The reality is that most if not all of the major priorities being identified in both the Governor’s proposed budget and the LFC proposed budget for the 2023 legislative session will require reoccurring funding and revenues from taxation. What all too often is totally ignored because lack of revenues are major capital outlay projects that are for the benefit of the general public and that improve the overall quality of life. Roads and water projects are such priorities, but are not exclusive.
It is very disappointing is that Governor Michelle Lujan Grisham and the Legislative Finance Committee budgets totally ignore advocating for major capital outlay projects that could be transformative for the state and that improve the overall quality of life. Roads and water projects are such priorities, but are not exclusive. Most if not all of the major priorities identified in both the Governor’s and the LFC Budget for the 2023 legislative session will require reoccurring funding and revenues from taxation.
Given the sure magnitude of the surplus, it is likely municipalities, citizens and interest groups will be asking for funding for special capital projects such as swimming pools, parks, recreation facilities, sport facilities, such soccer stadiums, and entertainment venues. Some lawmakers have already come forward with different ideas on how to spend some of the state’s budget surplus, including the building of a high-speed train crisscrossing New Mexico from north to south.
The Governor and the legislature should listen and fund such projects while they can. For the last two years, the New Mexico United soccer team has been trying to get taxpayer money to build a soccer stadium. In 2020, the soccer team was able to secure $4 million in state funds. In 2021, Albuquerque taxpayers were asked to support a bond to pay for the stadium, but it was rejected. With a $3.8 in surplus revenue, the legislature should consider fully funding the facility which will be about $16 million.
Other major capital outlay facilities and projects that has been discussed for decades is improving the New Mexico State Fair and all of its aging facilities. In particular, demolishing the 60-year-old Tingly Coliseum and building a multipurpose entertainment and sports facility with the capacity of upwards of 20,000 has been a dream of many a Governor, State Fair Commission and Fair Managers.
On February 25, 2019 it was reported that there is a need for such a facility and EXPO New Mexico was in the final stages of conducting a feasibility study on the construction of a new arena on the state fairgrounds. Tingley Coliseum has been around since 1957 with capacity for 11,000. Over the years it’s been remodeled and upgraded but it is still a state fair rodeo venue. The state and Albuquerque for decades has needed a large capacity, multipurpose entertainment venue of upwards of 20,000.
During the 2023, 60 day legislative session that begins on January 17 , there will be a consolidation and a consensus budget formulated that lawmakers will then approve for the fiscal year that will start on July 1, 2023 and end June 30, 2024.
Indeed, the 2023 legislative session could very well turn out to be a “once in a century opportunity” to really solve many of the state’s problems that have plagued it for so many decades. It should also be viewed as an opportunity to build facilities that are needed and that will have a lasting impact on the state’s quality of life for decades to come.