Off and On: Economy growing – so why are we suffering?

-A A +A
By Ralph Damiani

Last week, Gov. Richardson announced that the state would have $392 million in new revenue, bringing our total of new money for one-time spending to $1 billion.

And it was announced that we ranked 12th in economic growth.

Then why are we all suffering? The answer is the same as to why the state and the economy are doing so well: high oil prices.

Richardson said the new money will be on the table when he calls the Legislature into a special session to address access to universal health coverage.

But how does that work? This is not going to be a recurring income stream and any cost of such insurance will be. When oil prices drop, then what?

Sen. John Arthur Smith, a Deming Democrat and chairman of the Legislative Finance Committee, told the Associated Press that the state should use part of this money to provide a tax rebate to help residents cope with high prices.

And he also said that some of the revenue windfall should go to help cover a highway financing shortfall, which has caused the Richardson administration to delay projects that were part of a statewide transportation package approved in 2003.

Both of these ideas make sense, more than beginning a program with non-sustainable resources.

Richardson says we can use this money as he believes our economy will continue to grow.

He points to a report from the Bureau of Economic Analysis that shows our unemployment rate was 9th lowest in the nation for 2007, ending the year with a rate of 3.8 percent.

And New Mexico is 13th in the nation for personal income growth, with a 5.5 percent growth rate.

But these reports fail to mention that the skyrocketing fuel costs are outpacing these numbers and leaving people worse off than before.

Richardson also points to a national report that ranked New Mexico’s economic growth as the 12th strongest in the nation in 2007 according to the U.S. Bureau of Economic Analysis. New Mexico’s economy, adjusted for inflation, grew at a strong 6.7 percent rate last year.

Great. But this growth was directly related to the oil and gas industry and that growth is killing residents as they pay their fuel bills.

Even the state’s formal economic outlook concludes as much.

The outlook states that much of the new revenue is the result of royalties based on oil and gas production. But while high oil and gas prices is contributing to higher revenue for the state, high prices at the gas pump are forcing people to spend less elsewhere, which is resulting in lower-than-expected revenue from gross receipts taxes, and personal and corporate income taxes.

We have to agree with Smith. He contends that oil and gas revenues remain too volatile to rely on in financing a permanent health care expansion.

“If the governor still wants to stay that course on health care, I think he needs to suggest how he wants to raise taxes to the tune of $165 million a year,” Smith said. “We need something that is reliable and recurring to satisfy that need. The dollars that we have, by my way of thinking, are not going to be sustainable. I wish they were but I am just very, very apprehensive about it.”

And besides health care, public school finance is potentially big-ticket issue facing lawmakers. A proposed overhaul of the state’s school funding formula is expected to cost several hundred million dollars to implement.

It is true that high prices for oil and gas will help generate more revenue this year than had been previously projected and give the state a windfall.

But we fear that fact is being offset by the weaker revenues in gross receipts and income taxes, which are affected by the slumping national economy and higher energy costs.

We must be careful that we don’t get too far ahead of ourselves and forget that as one pocket fills up the other is being emptied at a faster rate – leaving us in an untenable situation.

Even the state’s economists were sounding warnings.

The administration’s top tax and budget officials outlined the revenue forecast to the LFC, which was meeting in Chama.

They warned lawmakers in written testimony that there were risks to the revenue forecast, including that New Mexico’s economy could be pulled down‚ “further weakening broad-based tax revenues‚” if the national economy worsens. The state also might have to increase its spending to offset reductions in federal money if Congress makes cutbacks because of a deep national recession.

We urge caution and careful deliberation here or we could be in a real mess in a couple of years.

E-mail Ralph at ralph@lamonitor.com.