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At one point in the rock opera “Tommy” by The Who, someone says, “I think it’s alright, yes I think it’s alright.”
Alright seems the status for the state’s financial condition, I concluded after financial officials reported to the recent annual conference of the New Mexico Tax Research Institute.
This year’s session of the Legislature was successful, said Charles Sallee, deputy director of the Legislative Finance Committee.
The session produced a balanced budget. The Constitution requires the budget be balanced, so producing a balanced budget is not news. What was successful, relative to the past few years, was the absence of phrases such as “solvency actions” and lack of talk of special sessions to whack spending in the face of declining revenue.
Both the Legislature and the Martinez administration agreed to use the $250 million in “new money” projected for budget year beginning July 1 on what Sallee called “targeted investments” in areas including education. Capital spending was authorized. Agreement came on the size and scope of tax cuts. State financial reserves were set at 9 percent of spending.
For the future, caution rules, indicated both Sallee and Secretary Tom Clifford, of the Finance and Administration Department.
“The real key from (the administration’s) standpoint will be continued spending restraint,” Clifford said. For spending, long term, “four percent (per year) is a very appropriate rate of growth. We should be able to add another one or two percent to that reserve.”
Protection against the volatility of recurring revenue is the reason for 10 percent reserves. Every dollar-per-barrel change in the price of oil, plus or minus, affects revenue to the tune of $4.9 million. A 10-cent change in the price of a thousand cubic feet of gas means $8.5 million for the general fund, again plus or minus.
Further caution stems from “the fairly weak employment figures we’re looking at,” Clifford said.
Those numbers show wage jobs increasing at an annual rate well under one percent and continued job losses in Albuquerque.
Further challenges Clifford mentioned included highways, local government finance and the corporate income tax.
The financial pressure on roads will continue to worsen. The State Auditor has designated 19 of the state’s more than 100 municipalities as financially “at risk.” Clifford’s department will help them get their books in order.
The feared erosion of the corporate income tax base by limited liability companies has not happened, Clifford said, so the tax is not going away. Structurally, the tax has many problems, including not knowing who really bears the impact of the tax. The guess is that the labor force takes the hit, rather than shareholders or customers.
For the LFC’s Sallee, an immediate problem is the $46 million of applications, as of February, for the high-wage tax credit, more than three times the $15 million for the same period in the previous fiscal year. Conversation with people at the TRI conference suggested that gaming the system — taking advantage of poorly written rules — is the cause. Fixes can be expected during the 2013 legislature.
Intermediate challenges are reversing solvency measures from the few years. Tobacco settlement money was diverted to Medicaid. State employees paid a greater share of retirement contributions.
Then the long term looms, starting, Sallee said, with the “persistently disappointing public school outcomes. We spend more money to subsidize inefficiency… than to serve at-risk kids.”
The past difficulties would have been worse without the federal stimulus funds cushioning the drop in state revenue.
The federal money was available because the feds have financial options not available to the state, namely deficit spending and printing money. The Obama administration’s excellence at these tasks merely transferred New Mexico’s financial issues to the nation.