NM eases through financial crisis

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Plenty of budgetary challenges still loom for state

By Harold Morgan

State government has gotten through its financial crisis reasonably intact. Revenue is showing some growth. There may be a little money left after the 2013 session of the Legislature. Huge challenges loom.
This was the overall message from David Abbey, director of the Legislative Finance Committee, to the conference of the New Mexico Tax Research Institute. Abbey spoke in Santa Fe May 12 to about 75 of the state’s tax and policy professionals
The general fund picture for the next budget year, fiscal 2012 that begins July 1, Abbey said, is that “we eased out of this difficult period” that began with a $700 million gap between FY 09 appropriations and recurring revenue. The gap went to almost $1 billion for FY 10, the budget year that ended June 30, 2010. The gaps were plugged with federal stimulus money, other state funds and solvency measures that included tax increases and spending cuts. The federal stimulus money went almost entirely for public education and Medicaid.
“We cut 2,500 jobs over two years, probably without a major impact on provision of goods and services,” Abbey said.
The FY 12 budget is balanced at around $5.4 billion, a big change from the past several years when the Legislature would leave the regular session and a spending-revenue gap of hundreds of millions of dollars in place and essentially say, we’ll figure that out later. The general fund is the state’s main pot of money. Transportation is not included in the general fund. The FY 12 “budget is essentially the executive recommended spending level,” he said.
The FY 12 focus remains on education, health care and the judiciary. Public schools will get $2.365 billion, which is 44 percent of the 5.4 billion appropriated. Higher education will get 13 percent, or $716.5 million. For Medicaid, the appropriation is $960 million, or 18 percent of the total. Everything else will get $1,389.9 billion, or 26 percent.
For FY 12, since the FY 09 solvency actions, public school spending is down 8.6 percent. Higher education is down 17 percent and Medicaid is up one percent.
Abbey observed that “higher education has the wherewithal to raise tuition.” Whether a tuition increase is a tax increase, one will have to ask Gov. Susana Martinez.
That “everything else” group — economic development, arts, labor, general government administration — is down 17.9 percent, or $303 million, since FY 09.
The revenue situation provided a bit of comfort, though not much, and a challenge. The comfort is that revenue through February is up 5.4 percent. More comfort comes from taxable gross receipts, which show “nice year-over-year growth” after no growth or declining for six quarters.
One challenge is that current projections suggest a little extra leftover revenue — $153 million — for FY 113. Abbey wondered whether “there is something really strategic we can do” with that money, assuming it appears, instead of frittering it away.
Public education presents a bigger challenge. Abbey described student performance as “pretty pitiful… a scandal.” For 15 years, schools have had limited oversight. The funding formula encourages gaming the system. Administrators simply are reacting to the incentives.
As one small example, Abbey said high school students taking college classes generate money for both the high school and for the college.
Pensions, too, need attention. Public retirees, who can be fairly young, get an annual three percent cost of living adjustment forever. A look at the retiree health care system found five spouses of retirees under the age of 25.
Speaking of the pension funds, Abbey said, “The legislature is going to have to deal with these issues over the next few years,” but without additional revenue.
In fact, he probably was talking all of state government.

Harold Morgan
© New Mexico News Services 2011