SANTA FE, N.M. (AP) — Economic growth in New Mexico should provide $296 million in new revenue next year, potentially allowing a 5 percent spending increase on public education and other government programs, according to a financial forecast released Wednesday.
The latest revenue projections were released to the Legislative Finance Committee, which was meeting in Chama. The panel will use the forecast in making budget recommendations to next year’s Legislature.
Top budget and tax officials in the Martinez administration said in written testimony that the state should collect nearly $6.2 billion in the fiscal year starting in July 2014. That’s $296 million higher than spending in the current budget. The additional pool of money could be used for spending increases and to offset potential tax cuts that may be approved by lawmakers and the governor.
However, Finance and Administration Secretary Tom Clifford said in a telephone interview that the state shouldn’t spend all of the new money. Instead, some should be saved to replenish the state’s cash reserves, which will drop partly because this year’s revenues are forecast to be $73 million lower than what was previously expected.
State officials consider it prudent to maintain reserves equal to about 10 percent of spending. However, the latest forecast calls for reserves to dip to about $450 million — representing about 7.6 percent of spending — at the end of the current budget year.
The state will have to tap into reserves to help pay for government operations this year because spending will be greater than revenues flowing into the main budget account. Lawmakers and the governor agreed on a nearly $5.9 billion budget for this year that increased spending by 4.2 percent. A package of tax cuts also was approved earlier this year.
Administration officials said federal budget cuts were a main reason why New Mexico’s revenues are lower than expected. New Mexico is a big recipient of federal spending at national laboratories and military bases. Cuts in federal contracting will lower the state’s gross receipts tax collections, lawmakers were told.
But Clifford said the state’s economic outlook is improving because New Mexico has started to see job growth.
“Prudent spending restraint exercised by the Legislature and the executive over the last three sessions means the state will have adequate revenue to accommodate modest spending growth and at the same time add to reserves to help replace revenue lost due to federal spending cutbacks,” Clifford and Taxation and Revenue Secretary Demesia Padilla said in a written statement to lawmakers.
The latest revenue update was prepared by administration and legislative economists.
Earlier this year, legislative staff and the administration were at odds over the revenue expected this year. Legislative analysts voiced concerns that some business tax cuts were costing more than anticipated. Lawmakers ended up using a different revenue figure than the administration. Based on those earlier legislative estimates, the latest forecast indicates that revenues will drop by about $105 million this year rather than the $73 million projected by the administration.
However, both the administration and legislative economists now agree that revenues will total almost $5.9 billion this year and grow by more than 5 percent to $6.2 billion next year.