The 2026 New Mexico legislative session begins on January 20 and ends on February 19. The 30 day legislative session, commonly referred to as the short session, is focused on budget matters and the agenda is set by the Governor as to what measures will be heard by the legislature.
GOVERNOR MLG RELEASES $11.4 BILLION BUDGET
On December 22, Governor Michelle Lujan Grisham released her $11.3 billion proposed budget for the fiscal year 2026 – 2027 which will commence July 1, 2026. According to the proposed budget, as usual sales taxes are expected to be the state’s largest source of general fund revenue next fiscal year at $5.5 billion.
The proposed budget contains a 4.6%spending increase of approximately $503 million. The increase is due to signs of cooling state revenue growth. The budget contains funding to compensate for federal cuts by the Trump Administration.
The proposed budget provides for a 1% salary increase for all state workers and teachers. Law enforcement officers, wildfire crews and some emergency responders would get even larger pay raises of 7% under the proposed budget.
The proposed budget earmarks significant one-time expenditures. The one-time expenditures include $100 million for statewide road projects, $238 million for water initiatives, and up to $200 million for the overhaul of the State Fairgrounds or moving the fairgrounds known as EXPO New Mexico. The proposed budget contains what will be likely a controversial proposal of $160 million for a universal childcare initiative which will be the subject of extensive debate by the legislature.
During the December 21 news conference releasing the governor’s proposed 2026 state budget, Lujan Grisham’s Chief of Staff Daniel Schlegel and several cabinet secretaries attributed the proposed increased state spending largely to the governor’s universal childcare initiative, as well as funding changes related to President Trump’s “One Big Beautiful Bill.” Under the proposed budget, the state would keep about $3.4 billion in reserves.
During the press conference, Chief of Staff Schlegel acknowledged the challenges that come with a slowed growth in state revenue income. Notwithstanding, Schlegel said the state remains in a strong position to spend on “non-recurring projects”, which are one-time expenditures not requiring on going funding. As an example, Schlegel brought up the governor’s 50-year Water Action Plan, which Lujan Grisham announced last year amid reports that the state’s water supply will decline by up to 25% in the coming decades.
The proposed budget recommendation would allocate $232 million across several state agencies in non-recurring spending to implement the governor’s 50-year Water Action Plan plan. That $232 million would go toward restoration programs in the New Mexico Environment Department, the Office of the State Engineer’s Water Rights Settlement Funds, and programs aimed at conserving water in agriculture at New Mexico State University and more.
Chief of Staff Dan Schlegel said this about the proposed budget:
“My expectation is that the Legislative Finance Committee will come in a little bit lower than this budget, which happens pretty much every year. … We feel strongly we’re still in a very good fiscal position with this budget. … We feel strongly that this is a responsible budget. We have seen massive increases over the years [including increases that have been in the double digits in recent years] …This is definitely [a] slowing down from those. …”
Schlegel said the governor’s budget proposal would leave reserves at 30%, or $3.4 billion, at the end of the fiscal year, and he said this:
“Thirty percent reserves, I’d reiterate, is a very big cushion for us moving forward.”
In a separate statement released in conjunction with the release of her proposed 2026 budget, Governor Lujan Grisham said this:
“This budget reflects seven years of disciplined investment that has transformed New Mexico. Even as we confront unprecedented federal funding challenges, we remain in the strongest financial position in state history. This budget puts that strength to work for families, students and communities across New Mexico. … I look forward to working with the Legislature to pass a budget that reflects our shared values.”
LEGISLATORS REACT
Gallup Democrat State Senator George Muñoz, Chairman of the powerful Senate Finance Committee, noted a slowdown in revenue growth, including a decline in corporate and personal income taxes. Muñoz said this about the governor’s proposed 2026 state budget:
“It’s a little bit too high for the amount of recurring money we have. … Everything’s dropping, and I do not want to come back to a special session because those revenue numbers are way too high. … We in New Mexico have done a lot of great things in New Mexico, and now the economy is slowing down. … We know that corporate income tax and personal income tax, and GRT [gross receipts tax] is slowing. We know that production is leveled off, but prices are down. So, as the economy slows, so do we, because we’ve set New Mexico up so we don’t ride a roller coaster again.”
Representative Nathan Small, D-Las Cruces, the chairman of the powerful Legislative Finance Committee, said the Legislature shares many of the same spending priorities as the governor’s plan. However, Small expressed concern the spending levels proposed by the Governor would grow the state budget by too much given current economic conditions. Amid a recent revenue boom, state spending has increased by more than 70% since 2019. Small said this in a December 21 interview with the Albuquerque Journal:
“We have to be careful about not getting out over our skis given the federal budget uncertainty.”
REPUBULICANS ACCUSE GOVERNOR OF RECKLESS SPENDING
Typically, and not at all surprising, Amy Barela, chairwoman of the Republican Party of New Mexico, characterized Lujan Grisham’s proposed 2026 budget as reckless spending. In a statement, Barela said this:
“There’s a long list of issues our state faces that Governor Lujan Grisham has failed to address, and her spending spree won’t improve any of them. Democrats like our governor are great at recklessly throwing money at problems and not so great at solving those problems. Whether it’s crime, drugs, homelessness, the economic outlook, or the state of our public schools, New Mexico is routinely among the worst states in the country. That is her legacy, and she can’t spend her way out of it.”
REDUCED SPENDING RESULT OF REDUCED INCOME GROWTH
The governor’s proposed 2026 budget that starts on July 1, 2026 calls for spending levels for the fiscal year to outpace projected revenue levels by upwards of $400 million. The Governor’s Office said the new money figure does not include a one-time general fund spike from the State Land Office that was generated by a much larger than expected oil and gas rent and lease sales.
State spending can be categorized as “recurring” or “non-recurring”. Examples of “recurring expenditures” would be creating new staff positions at state agencies or paying for increasing employee health care premiums. Examples of “non-recuring expenditures” would be one-time expenses like road construction projects. The slowed growth reflected in the governor’s 2026 proposed state budget primarily affects recurring spending.
State economists earlier this month briefed lawmakers on the state’s economic outlook. They said New Mexico is “treading water,” while much of the nation is in or near a recession, and attributed the stalled revenue to lower oil prices and corporate income taxes. They also predicted further revenue declines amid federal cuts to programs like Medicaid and the Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program. Not only have state economists revised revenue growth projections downward, but revenue is expected to contract 1.6% in the current fiscal year, ending on June 30, 2026 after growing at a record pace in recent years.
Financially, New Mexico is in a better positioned than many other states because of historical oil and gas revenues. However, oil and gas revenue projections were recently scaled back due to falling oil prices and lower-than-expected corporate income tax collections connected to a federal budget bill. Revenue estimates released recently project lawmakers will have $105.7 million in “new” money available in the coming year. New money represents the difference between projected revenue and current spending levels. The amount of projected new money at the same point in time one year ago was roughly $892 million.
MODEST 1% SALARY INCREASES FOR GOVERNMENT WORKERS
Over the last six years, the average annual salary of New Mexico state workers has increased by 47%, from about $49,950 to roughly $73,520 per year. Average teachers salaries have increased at a slightly slower rate, increasing from $49,770 to $68,670 annually. The increases in state employee salaries during the past 7 years under Democrat Governor Lujan Grisham is in sharp contrast to state employees salaries remaining very stagnant during the full 8 years of Republican Governor Susana Martinez. With the state facing a revenue slowdown, the governor’s 2026 proposed budget contains no large pay raises for government workers.
The governor’s proposed 2026 state budget plan appropriates $62.7 million to pay for a 1% salary increases for state employee’s and teacher’s salaries. It also calls for an additional 7% salary increase for law enforcement and emergency fire response personnel. The proposed budget includes $13.5 million for the 7% for state police and firefighting personnel salary increases.
The budget proposal includes $57 million to implement a wage scale and career mobility framework in the childcare, early intervention and prekindergarten workforce across the state. It recommends directing $16.5 million to the Children, Youth and Families Department’s Juvenile Justice Service Division because of the increased number of children detained across the state.
While the legislature has not yet issued its own spending plan for the coming year, Senator George Muñoz, D-Gallup, the chairman of the Senate Finance Committee Muñoz said a similar-sized salary increase will likely be included.
UNIVERSAL CHILD CARE INITIATIVE
The most controversial measure during the 30-day 2026 legislative session will be Governor Lujan Grisham’s plan to spend an additional $160 million to pay for a universal child care initiative. According to the executive budget recommendation, that brings the overall cost of childcare to $606.4 million. The governor announced the initiative in November, saying it would remove previous income limits for receiving state-subsidized childcare.
The Governor’s Chief of Staff Daniel Schlegel said the Governor believes universal childcare and universal pre-K should fall under recurring spending as a top priority for the state. He said he expects “productive negotiations” in the 30-day session around finding ways to consistently fund it into the future. Schlegel said this:
“We’ve been driving toward universal childcare and universal pre-K since the start of this administration, and that’s no secret. That’s something that we have as a shared priority with the Legislature. I think that figuring out a way to fully fund it is going to require some creativity between us and the Legislature.”
Several influential legislators have expressed misgivings about the hefty price tag and rollout of the universal child care plan, including Sen. George Muñoz, D-Gallup, the chairman of the Senate Finance Committee. Muñoz said legislators will be looking closely at possible “spending guardrails” for the initiative. The spending guardrails could include directing the state’s Early Childhood Education and Care Department to tap a trust fund with a $10.9 billion projected balance to pay for universal child care. Muñoz said this:
“I don’t disagree with universal childcare, but it’s going to need a lot of tweaking. In rural parts of New Mexico, they’re deserts for childcare. And, you know… everybody needs to work, and everybody needs their children taken care of…So, how do we stand it up for the poor, the middle class? We’re in a great place in New Mexico. … Just don’t overspend or you’re going to break the piggybank.”
The state’s child care assistance program has already seen its funding increase from about $150 million in 2022 to roughly $440 million as of this year. Elizabeth Groginsky the Cabinet Secretary for the state’s Early Childhood Education and Care Department said that additional funding infusions would be required in the coming years to keep child care “free” for New Mexico families. But she also said the initiative would lead to better outcomes for children in New Mexico by improving economic opportunities and better caring for their health.
SUSTAINABILITY FOR FREE CHILD CARE RAISED
New Mexico has become the first state to offer free child care to all residents, but the program’s funding and sustainability have raised concerns. The program, which previously only covered families making up to 400% of the federal poverty level, now extends to all New Mexicans. This expansion has led to concerns about the program’s cost and sustainability. Paul Gessing, president of the Rio Grande Foundation, a conservative taxpayer watch dog group, referenced a report from the state’s Legislative Finance Committee which warns that spending could increase from $450 million to nearly $850 million annually by 2027. Gessing said this:
“Depending on uptake and further inflation and the challenge of bringing new providers into the system, this could just be the starting point in terms of those price increases.”
The Legislative Finance Committee report also highlights a significant increase in the number of children qualifying for the program, from just under 100,000 to 326,000, with only 31,000 care slots available. Reilly White, an economics professor at the University of New Mexico, noted the potential supply and demand issue saying this:
“We’ve increased the level of subsidies, but not the supply of available child care.”
Despite these concerns, Cabinet Secretary Elizabeth Groginsky for the state’s Early Childhood Education and Care Department, remains optimistic about the program’s sustainability. She said that care slots have increased by 20% since 2019, with an estimated 4,500 new spaces expected to open across the state. She also does not anticipate costs doubling by fiscal year 2027, estimating increases at $600 million instead of $800 million. When asked point blank if the program would be sustainable, Groginsky said this:
“Yes, I absolutely do! … What we’re hearing from families is this has been the relief they’ve been looking for.”
Governor Michelle Lujan Grisham’s budget recommendation for fiscal year 2027 aligns with Groginsky’s calculations, suggesting $600 million in funding.
The link to the quoted or relied upon news source on child care sustainability is here:
INCREASE SPENDING FOR HEALTH CARE AUTHORITY
In addition to increased early childhood spending, the state’s Health Care Authority would also receive a significant increase in spending under the governor’s proposed budget plan. The proposed spending plan calls for a $2.13 billion general fund budget for the Health Care Authority, an increase of $61.6 million, or 3%, over the current fiscal year, primarily to deal with federal funding cuts and changes to Medicaid and the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps. Much of the $61.6 million budget increase would go toward offsetting impacts posed by a federal budget bill signed by President Donald Trump in July which includes reducing federal funding for states’ administrative costs.
State health officials project up to 100,000 New Mexico residents will lose Medicaid coverage starting in January 2027, which would continue a trend that started in mid-2022. The agency’s budget includes a recommended $92.9 million to provide health coverage for Medicaid enrollees who would otherwise lose coverage under the federal budget reconciliation bill President Donald Trump signed into law in July. That includes so-called “lawfully present” immigrants, such as refugees and victims of trafficking.
POSSIBLE TAX PACKAGE, NO TAX REBATES
The Governor’s Office indicated that the proposed budget released on December 22 has the capacity to allow for a $300 million tax package that would be phased out over three years and would require separate legislative approval. Tax changes included in such a package could include a $50 million tax refund for quantum computing research, as New Mexico has already issued financial incentives for start-up companies in the advanced technology industry.
Governor Chief of Staff Daniel Schlagel said this about the proposed tax package:
“A big part of our priorities for the tax package are economic development-related. … Those do tend to be on shorter term when you’re talking about incentivizing industries to come to New Mexico. We’ve already had some success in the quantum space. We want to see that grow, and fusion is in the same place. But even a three-year incentive can provide a lot of investment to the state, so we’re comfortable with thinking more narrow on a tax package rather than a full-on recurring tax package.”
The Governor’s Office said it does not envision a rebate for New Mexico taxpayers being part of such a tax package. It was in 2023 that the state last issued such rebates of $500 per person.
ONE TIME EXPENDITURES
The governor’s spending plan also calls for a capital outlay package of $525 million and a $300 million tax package with sunset provisions, making it a one-time expense as opposed to recurring. The 2026-2027 proposed budget calls for hefty one-time spending, including $100 million for statewide road projects, $238 million for water projects and up to $200 million to overhaul the current site of the state fairgrounds in Albuquerque possibly find a new home for the annual state fair also known as Expo New Mexico. The $1.7 billion in one-time appropriations include the following:
- $200 million for the Federal Reimbursement Revolving Fund, which helps to pay for responses to natural disasters
- $100 million to select, acquire and build a new State Fairgrounds, if necessary
- $100 million for State Fairgrounds revitalization projects
- $100 million for statewide road construction and maintenance projects
- $65 million for statewide affordable and attainable housing initiatives
- $65 million for the Strategic Water Supply Fund
- $60 million to the New Mexico Match Fund, which helps New Mexico locales leverage federal grants
- $49.3 million for the Quantum Benchmarking Initiative
- $45 million for statewide homelessness initiatives
- $38.5 million for career and technical education
- $35 million Indian water rights settlements
- $30 million for a reading intervention program
- $25 million for a health professional loan repayment program
- $22.5 million for complying with the terms of a settlement agreement in a lawsuit over the Rio Grande’s water supply
- $22 million for aquifer monitoring
- $21 million for statewide cybersecurity initiatives
- $20 million for the state Research, Development and Deployment Fund
The link to review the Governor’s proposed 2026 budget is here:
Click to access Executive-Budget-FY26-Digital-1.pdf
FUNDING FOR STATE FAIR REVITALIZATION OR MOVING STATE FAIR LIKELY CONTROVERSIAL
The $100 million for State Fairgrounds revitalization projects and the $100 million to select, acquire and build a new State Fairgrounds in one time capital outlay funding are expected to generate heated debate amongst lawmakers. The blunt reality is the two past studies to move the fair, acquire property and build new facilities have been in excess of $1 billion dollars.
It was December 3, 2024 Governor Michelle Lujan Grisham announced her plans to move the New Mexico State Fair to a different location and redevelop the 236 acre State Fair property into a mixed-use development, including affordable housing. On March 21, 2025, in response to the Governor’s announcement to redevelop or move the state fair, the New Mexico legislature passed legislation creating the “State Fairgrounds District.” It is a board that has redevelopment funding authority over the existing State Fair grounds area. The board has no authority to move the fairgrounds. It will be up to the New Mexico State Fair Commission to make the decision to move the fairgrounds.
Governor Lujan Grisham’s proposal to moving the state fair has been met with strong opposition and resentment from area residents of Albuquerque’s International District on the South, and neighborhoods North, West and East of the Fairgrounds which has dealt with rampant and rising drug use and homelessness in recent years. The proposed redevelopment has proven controversial with residents and voters who say that they are concerned the funding will do little to help the neighborhood, will uproot the historic annual State Fair and will, like past efforts at fairgrounds redevelopment, be a flop.
On December 8, the Governor’s Office released to the public three concept plans prepared for the development of the State Fair property and on December 11, the State Fair District Board held its monthly meeting and all three plans were presented to the board. All three Concept Plans call for major redevelopment of the Southwest corner of the property at San Pedro Drive and Central Avenue. The state is already moving to acquire for $22 million the property with the issuance of bonds to finance the acquisition of the properties either by negotiations with the property and business owners or by litigation and adverse condemnation.
Two of three designs keep the fair where it is but on a reduced footprint, and they share many of the same amenities, though they differ in size and quantity.
Concept One maintains the midway, using it as a large parking lot for the rest of the year, but adds a new exhibition space, a 10-acre park, affordable housing, an event center and a hotel to the grounds’ south side.
Concept Two significantly reduce the midway while new amenities like an event center would take up more space. The second design also includes space for a museum.
Concept Three is the most draconian of the three plans. It would require the fairgrounds to be completely relocated. On top of the amenities present in the previous designs, this design would include “hundreds” of housing units, a school, workforce development center and two parks that would add 20 acres for park areas.
COMMENTARY AND ANALYSIS
The 2026 session will be Governor Lujan Grisham’s last as Governor and for that reason she is considered a “lame duck” and she will have less leverage with the legislature than she has had in past sessions.
It is painfully obvious that Governor Lujan Grisham is attempting to solidify a legacy as being a transformative Governor with her 2026 proposed budget when she includes such controversial issues as free Universal Child Care for all as well as moving the New Mexico State Fair Grounds or redeveloping it for affordable housing.
The problem for Governor Lujan Grisham is that her influence as a lame duck over the legislature will be severely tested given the state’s financial condition.
Links to quoted or relied upon news sources are here:
Click to access Executive-Budget-FY26-Digital-1.pdf
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