Lawmakers, bureaucrats and lobbyists are salivating over the nearly $200 million in “new money” Santa Fe is slated to receive during New Mexico’s next fiscal year.
But while the worst of our state’s fiscal crisis appears to be behind us, caution is called for – not euphoria.
According to analysts with the Legislative Finance Committee (LFC), New Mexico’s “recent rebound in revenues is based to a significant degree on the recovery of the oil and gas industry, which is highly volatile.” The price of a barrel of West Texas Intermediate could continue to climb, soaring into the $60-$80 range, but it could tumble back under $30 – where it was as recently as February 2016. The OPEC-Russia agreement to limit supply may not hold, and countries beyond the reach of the cartel and Vladimir Putin continue to ramp up production. The U.S. fracking revolution, offshore development in Brazil, growing investment in Arctic oil, and Mexico’s decision to deregulate its energy sector are just four factors that will boost supply. Gambling on a consistently high petroleum price as a solution to budget deficits is a sucker’s bet.
Corporate welfare poses an additional risk to fiscal health. Perks for pols-favored companies and industries are, at best, ineffective, but they’re also an impediment to sound budgeting. LFC analysts have warned that substantial “potential exists for unforeseen increases in the cost of tax expenditures to state revenues. In recent years, several tax expenditures had larger fiscal impacts than initially estimated, significantly contributing to revenue estimating error. In some cases, the revenue impacts exceeded initial estimates by up to an order of magnitude, requiring changes in statute to curb the impact.”
The Wall Street Journal recently reported that the nation’s “economy is running at its full potential for the first time in a decade.” Unemployment (outside New Mexico) has cratered, the stock market is surging, housing is strong, consumer confidence is high and inflation is low. But the good times might not last. The “Trump bump” has not outlawed recessions, and with such a woefully underdeveloped private sector, New Mexico’s fortunes are tied to how the U.S. economy performs. A stock-market collapse, trade conflicts or a foreign-policy crisis could halt, or even reverse, the national economy’s expansion.
Recession or not, to the extent that New Mexico is experiencing any job growth at all – the state still has fewer jobs now than it did in February 2008 – lower-paying positions are replacing lucrative employment. The manufacturing sector is offering fewer opportunities, as is the information technology industry. Leisure-and-hospitality jobs are predicted to keep growing as are positions – often low-paid – in healthcare and social assistance.
On the spending side, because New Mexico refuses to address the impacts of the state’s government-incentivized social pathologies, pressure is relentless for more “education” and “human services” expenditures. The burden of Medicaid expansion will only intensify with nearly half the state’s residents now on the health-care program. The Children, Youth and Families Department wants a 10-percent increase for the next fiscal year. Despite abundant evidence that greater spending is not tied to improved achievement, teacher unions and naïve “for the children” lobbyists will be pushing hard for huge boosts to government schools’ revenue streams. And let’s not forget “infrastructure.” The New Mexico Rail Runner Express needs a jaw-dropping $50 million to comply with a federal safety mandate and “Spaceport America” is seeking new subsidies for a doomed-to-fail quest to finally make itself financially self-sustaining.
As the LFC has documented, $605.3 million worth of “solvency legislation” – “sweeps,” tobacco-settlement funds, tax tweaks, deferred payments, and capital-outlay adjustments – was needed to balance the books in fiscal 2017. It’s good that such desperate tricks are no longer needed.
But the Land of Enchantment is hardly “in the money,” and it shouldn’t behave as if it is. The budget reserve is still inadequate, positive revenue trends are by no means guaranteed to last, and economic-development-oriented tax reform remains long overdue. Lawmakers and the governor should avoid the temptation to put spending back on autopilot. Prudence, not elation, should guide state fiscal policy in 2018.
– firstname.lastname@example.orgDowd Muska (email@example.com) is research director for the Rio Grande Foundation, an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on the principles of limited government, economic freedom and individual responsibility.