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While higher fuel prices hurt consumers – and the state highway fund – they are helping the rest of state government avoid a budget squeeze this year.
This is despite a slowdown in the state's economy and an expected dip in certain tax collections, the Associated Press reported.
The high revenues from oil and natural gas production are serving as a financial safety net for the state.
"Very high prices for crude oil and natural gas are producing revenues that offset some weakness in revenues from the broad-based taxes and interest on the state's investments," Katherine Miller, secretary of the Department of Finance and Administration, said.
Despite economic turmoil nationally and a slowing of New Mexico's economy, the state still expects to collect nearly $6 billion this fiscal year.
Even if the state's overall revenue collections fall short of projections, New Mexico maintains hefty cash reserves that can be used to cover a gap between revenues and spending.
Lawmakers and the Richardson administration use revenue projections to prepare the state's budget and track whether government is headed for a financial shortfall.
Gross receipts tax collections probably will be lower than expected this year, but personal income tax receipts will be close to projections. Income and gross receipts taxes are the top sources of revenue for state government.
But the money from taxes and royalties from oil and gas production will be higher than forecast amounts. That's because current prices for oil and natural gas exceed what state economists used in making the most recent revenue projections.
The Legislature and governor agreed on a $6 billion budget for 2009 that provides for a spending increase of $360 million, or 6.3 percent.
If revenue and spending meet projections, the state expects to end the current budget year with cash reserves of more than $600 million. That's the equivalent of slightly more than 10 percent of spending.
Several committee members expressed concern that New Mexico, even if the economy doesn't worsen, will face a tight financial outlook when the Legislature convenes next January to start preparing a budget for the 2010 fiscal year.
This fact is borne our by an analysis of the New Mexico Legislative Finance Committee's 2008 Post Session Review shows that the state's tax revenues will not keep pace with the state’s economy or inflation, creating a budget shortfall as early as FY 2010, which begins in July 2009.
The analysis is laid out in the report "New Mexico's Revenue Forecast: The Coming Drought," released by the child advocacy organization New Mexico Voices for Children.
"The state's own projections are for a deficit of $8 million in 2010 that will grow to $122 million by fiscal year 2012," said Gerry Bradley, Research Director for NM Voices and the report author. The analysis shows that all of the state's major sources of revenue, except taxes on oil production, are expected to slow in coming years.
While taxes on oil and natural gas increase as prices for these commodities rise, this cannot last forever and is not our salvation.
"Unless we find new revenue streams, the state will be forced to cut services and programs," said Bradley, "and new priorities that are already being discussed, such as the school funding formula, are even less likely to be implemented."
And by “new revenue streams” they mean higher taxes.
The report poses several policy solutions for increasing revenue. Among them are implementing combined reporting, which would require multi-state corporations to pay their fair share of corporate income taxes on their profits here, and closing a loophole in the state's personal income tax code that essentially allows filers who itemize to take the same deduction twice. These two initiatives alone would bring in an estimated $140 million a year.\
The state would need to increase spending by hundreds of millions of dollars, he pointed out, if the Legislature and governor agreed to proposals for universal health care coverage, revamp the state's school finance system, shore up an ailing health care plan for government retirees and cover a highway funding shortfall.
And when the oil well runs dry – so to speak – just where that will leave us all is a question we really hear no one asking.
And it is a vital one.