Whatever the shortfall, service cuts are looming

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By Harold Morgan

A crowd appeared for the Dec. 2 Legislative Finance Committee meeting. The topic was a new consensus General Fund Revenue Projection. All 16 LFC members were there.
Eight other legislators had a chair at the front of Room 307 in the Capitol in Santa Fe. House Speaker Ben Lujan sat in a dark corner, almost hidden. Room 307 wasn’t full, as in wall-to-wall full. The audience, scattered around the room, included lobbyists, state staff, and business types.
Key elements of recent revenue projection meetings were missing. The administration’s presentation lacked the gratuitous claims that Gov. Bill Richardson had built a grandly better economy for New Mexico. Movie subsidies went undefended.  While revenue shortage estimates from the executive and the LFC remain far apart, the differences come from reasoned assumptions one way or the other, so there was no need for the presenters or legislators to suggest anyone was smoking something in creating revenue assumptions.
After the presentation, two things did not happen: many harsh questions from LFC members and lectures from LFC members to the effect that administration projections were fantasy. For example, after past presentations, Sen. John Arthur Smith (D-Deming) has commonly wondered about the logic behind administration projections. Rep. Don Bratton (R-Hobbs) repeatedly has observed that oil and gas price assumptions had no basis.  The harmony was unexplained. Maybe — speculating here — it had something to do with being in transition to a new administration, which hasn’t yet revealed plans. Brian Moore, incoming deputy chief of staff and legislative director for Gov.-elect Susana Martinez,  stopped by and shook a few hands as the hearing began. Moore was an LFC member during his time in the legislature.
Forecast revenue remains well short of “maintaining current services,” as the wonks put it. The shortage is $215 million, says the LFC. It might be $410 million, says the administration. Differing assumptions explain the $195 million gap. The two organizations agree on the forecast for revenue coming into the general fund, the state’s main pot of operating money, for FY 12, the budget year ending June 30, 2012. The estimate is $5.4 billion. Both assume spending will increase from the $5.2 billion appropriated for the current year. Remember that transportation spending, also short about $250 million, is outside the general fund.
The LFC’s presentation lists eight items that explain the deficit difference. The LFC assumes use of tobacco settlement money for Medicaid, spending more than does the administration for TANF child care replacement ($33 million vs. $14 million), and continued higher employee contributions to retirement funds. The administration sees more growth of Medicaid spending than the LFC ($377 million vs. $280 million), replacing (somehow) temporary federal funds for higher education, more judicial spending and spending $25 million more for the “rest of state government.”
During the past two years, total appropriations are down 8.5 percent, the LFC says. Medicaid has dropped less than one percent with public schools down 6.2 percent, higher education down 11.6 percent and “other” with a 15 percent decline. In a way, the previous cuts and the specifics of projected deficits don’t matter much. That’s because the numbers remain large, and the solutions have to come from the incoming Martinez administration. The scenarios amount to “worse and worser” as LFC chair Rep. Lucky Varela put it.
A big cloud on the forecasts comes from the state economy, still in recession except for Las Cruces. UNM’s economic forecasting service, consistently wrong for several years, projects slight job growth next year. Another large cloud comes from swarming interest groups, all of them special.
Look out.
The assumption of maintaining current services is the biggest cloud. It can’t happen.

Harold  Morgan
NM News Services