SANTA FE, N.M. (AP) — Surging state tax revenues and a rebound in the oil and natural gas sectors are propelling a rapid turnaround in New Mexico government finances, state economists told a panel of lawmakers on Monday.
State government income for the fiscal year starting on July 1, 2018, is expected to surpass current annual spending by $199 million, economists told the state's lead budget-writing committee.
The forecast signaled that state government is emerging from two years of austerity measures that resulted in slashed spending at state universities and colleges, while threatening funding for classrooms, courts and museums.
"It's really good to be here today to present some really good news," Finance and Administration Secretary Duffy Rodriguez said.
Economists at four state agencies told lawmakers to expect an additional 3.3 percent in general fund spending money over the current $6.1 billion budget.
Much of the fiscal rebound comes from personal income taxes — an estimated $167 million increase during the current and coming fiscal years. Income from oil and natural gas was adjusted upward by $140 million for the same period.
Sen. John Arthur Smith, D-Deming, said much of the new revenues will be needed to replenish drained state accounts, citing state funding for roads in particular.
"We have a lot of rebuilding of the foundation to do," he said.
At the same time, ongoing federal tax reform efforts could dramatically alter the state's available funding. Of particular concern was the future of federal mineral leasing payments that provided New Mexico with an annual $436 million.
Lawmakers are likely to know more about the implications of federal tax reforms before they convene in January for a 30-day session to craft a state spending plan for the coming fiscal year.
Just over six months ago, New Mexico resorted to tapping severance tax bonds to plug a budget hole amid a hiring freeze and cuts to spending at several state agencies.
That budget equation has shifted dramatically . The state has rebuilt reserves to $505 million — or 8.3 percent of annual spending — as of June 30 of this year, and expects to reach the 9 percent mark by mid-2018.
The credit ratings agency Moody's Investors Services has recommended that the state maintain reserves of at least 10 percent to withstand a mild recession, and 17 percent for a major economic downturn.
Rodriguez said that reaching the 10 percent reserve mark is a priority for the administration of Republican Gov. Susana Martinez, who leaves office at the start of 2019. Reaching that goal would likely siphon away roughly $63 million of $199 million in surplus revenues.
Jon Clark, chief economist with the nonpartisan Legislative Finance Committee, warned that the state remains heavily reliant on fluctuating income from the oil and natural gas sectors.
State finance authorities have increased estimates for personal income taxes in the current and coming year as unemployment declined to 6.1 percent in October, still well above the national rate of 4.1 percent.
Much of the recent job growth has been in lower-wage industries.