State's finances look pretty good, job growth approaches zero

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By Harold Morgan

Looking ahead at the coming budget year for state government, the overall view from the Legislative Finance Committee is, “All of a sudden we find ourselves in a pretty good fiscal situation.”
That means that $293 million in “new money” should appear during the year starting July 1, 2014, LFC Director David Abbey told the Legislative Outlook Conference of the New Mexico Tax Research Institute.
The conference was Dec. 19 in Albuquerque, attracted the central players in the New Mexico tax conversation, about 150 business people, lobbyists, economists, legislators, government officials and policy wonks.
The new money results from 5.5 percent growth in revenue to the general fund, the state’s main operating pot of money, and declining Medicaid costs, which eat one-sixth of the budget, Abbey said. The 2014 legislative session offers “quite a good opportunity to address the needs,” he said.
The new financial situation follows a tough few years. Fiscal years 2009 and 2010 saw a 20 percent drop in general fund revenue. During the next two years, the state fought to maintain key services and adequate reserves. Then the state had to undo the previous four years of patches.
Tom Clifford, secretary of the Department of Finance and Administration, told the conference that spending next year will grow just over 4 percent. The long-term revenue growth trend is about 4 percent. Increasing spending more than revenue would bring big trouble, Clifford said. It has happened before.
The economy is uncertain. Job growth offered an optimism-producing summer jump. The peak came in July with 8,800 more wage jobs, or 1.1 percent, year over year. By November, the report, released Dec. 20, still showed an increase, but only 1,700 jobs, or 0.21 percent.
“We thought we had turned the corner,” Clifford said.
Initiatives to appear in the LFC’s recommendations — to be released Jan. 3 — focus on the young. For early childhood programs, the request will be for additional spending of $100 million over the next three years, about a 50 percent increase from the current budget year. Higher education will get a recommendation for 5 percent more money and a shift in the spending approach. Base spending will drop with “performance funding” to grow.
Capital spending on transportation would increase by “tens of millions,” which Abbey called “a drop in the bucket.”
Compensation for state employees “will be a pretty significant area of difference” with the administration, Abbey expects. Money has been allocated for 2,000 jobs, but the positions remain vacant.
Call them challenges or outstanding issues, there is more to running the government than recommending and appropriating.
For Abbey and the LFC, talking about managing for results is one thing. Getting it done is another. Who decides what are the evidence-based practices? Simply “getting money out the door” can be a problem. He cited $1 million that has not been released for Teach for America.
Clifford’s list starts with federal austerity. He hopes the worst is past. The state has a running debate with the feds over a special education reserve with perhaps $20 million in the balance.
A lawsuit settlement could cost more millions. The shortfall to the tobacco fund is $25 million. Finally, the lottery scholarship fund is “seriously underwater” and needs restructuring.
A bit of good news is that the state, as of July 1, is reconciling spending each month. The cost of past accounting failures (that’s my term) could be tens of millions.
Abbey said, “The Legislature probably has tax-cut fatigue.” But we should really worry that the overall gross-receipts tax rate is pushing 10 percent. The rate is out of whack as compared to surrounding states.
Looming change? It’s always something.