Staff and wire reports
SANTA FE — State government is looking at an unprecedented revenue windfall.
Gov. Bill Richardson and legislators will have more than $600 million in “new money” next year for spending increases and programs and to cover the cost of tax breaks.
The latest revenue projections call for more than twice as much money available for next year’s budget than had been anticipated in July.
The big increase in revenues is mostly because of high energy prices. The state collects taxes and revenues from oil and natural gas production. Corporate income tax revenues have soared because of oil and gas industry profits.
The Legislature and the governor also will have a huge pool of additional money available for spending this year, such for one-time budget supplements for agencies and programs as well as for capital improvements.
This year’s revenues are projected to be $833 million higher than a February forecast used to set spending levels in the budget.
The governor’s top budget and tax officials outlined the new revenue figures Thursday to members of the Legislative Finance Committee.
James Jimenez, secretary of the Department of Finance and Administration, said the financial outlook offered “an unprecedented opportunity” for the state.
However, he cautioned against a spending spree.
“We, the executive and the Legislature, will be faced with demands for increasing recurring spending to meet well-deserved needs as well as wishes and wants,” Jimenez told lawmakers.
“This forecast will show that if we are not careful in setting a sustainable level of spending, the state may be faced with very difficult choices to either cut spending or raises taxes in FY08, FY09 and FY10,” he said.
“There are now over 600 million reasons why the new tax and rebate bill we passed unanimously during the special session should be signed,” said Republican state senator Stuart Ingle of Portales, in a press release. “The new revenue estimates indicate the state will have more than enough to run state government and give $108 million back to the taxpayers in the form of tax cuts and $106 million in rebates.”
The next budget year — fiscal 2007 — starts in July 2006 and runs through June 2007. The Legislature will meet in January to develop next year’s state budget.
According to the latest revenue forecast, lawmakers and the governor will have about $659 million next year to cover spending increases, tax breaks or to build reserves.
That figure reflects the amount next year’s revenues are projected to exceed current spending.
The so-called new money will be $624 million if the governor signs a tax bill approved during a recent special session of the Legislature. Richardson is expected to act Friday on the measure.
A provision in the bill will speed up the implementation of personal income tax rate cuts enacted in 2003. The measure also provides a one-time tax rebate to New Mexicans. The governor had said he would decide whether to accept the income tax speedup after reviewing the latest revenue outlook.
The revenue projections were developed by economists in the Richardson administration and Legislature. The estimates are critical for lawmakers because they help answer the question of how much money will be available to cover growth in programs and services — ranging from public education and health care initiatives to salary increases for teachers and government workers.
In the next fiscal year, the state expects to collect nearly $5.4 billion in the main budget account from taxes, royalties on minerals production as well as earnings on state balances.
This year’s revenue collections — after the latest update — are expected to reach $5.5 billion and be almost 14 percent above the 2005 budget year.
The revenue forecast for next year calls for a 3.4 percent decrease, mostly because economists are expecting a drop in oil and gas prices.
In updating the revenue projections for this year, economists assumed that the average New Mexico price for natural gas will be $9.20 per thousand cubic feet or mcf — up from an average of $4.80 per mcf in February’s revenue forecast and $5.70 per mcf from a July revision. In the 2007 budget year, the revenue projections are based on gas prices dropping to an average of $7.50 per mcf.
The state’s cash balances have grown substantially because of the better-than-expected flow of revenues.
Reserves stood at about $663 million at the end of the 2005 budget year on June 30. That’s the equivalent of 15 percent of general budget account spending. The reserves will grow to $1.5 billion — equal to almost 32 percent of spending — at the end of this budget year if current spending doesn’t increase.
However, some money in the reserves will be spent on capital improvements. Other financing for capital projects will come from bonds backed by severance taxes and general obligation bonds, which are backed by property taxes and require voter approval.
Jimenez estimated more than $400 million will be available for capital projects from severance tax bonds and almost $150 million from general obligation bonds.