Senate OKs leaner budget, sends it back to House

State lawmakers emptied their pockets and cleaned out their cupboards Monday in passing a trimmed-down spending plan for 2017 that lowers general fund appropriations at a time of tumbling revenues.

The $6.2 billion budget that pays for everything from education to criminal justice reduces the general fund by $7 million starting July 1 and moves $129 million from dozens of unspent accounts to pay for basic operations.

The measure passed the full Senate Monday by a 39-to-1 vote, and the bill now heads to the House of Representatives. The Republican-led House is expected to concur and pass it on to Gov. Susana Martinez, who can line-item veto specific spending items before signing it into law.

In spending down reserves to the lowest level in years and tapping unused accounts, the one-time bridge means the battle over tax revenues in New Mexico is probably just getting started.

“Next year we have no more sweeps and no more [reserve] balances,” said Sen. Carlos Cisneros, D-Questa. “The budget is the best we can do and will hold us up for the remainder of the year.”

“We’ve tried to sweep every corner of money we might have,” said Sen. John Arthur Smith, D-Deming and chairman of the Senate Finance Committee. “That tells you what the conditions are going to be in 2018.”

Revenue flowing into the state general fund is closely tied to the price of oil and gas. A $1 decline in the price of crude can wipe out $10 million in tax revenues. The price of a barrel of oil was $29 on Monday. The Senate-passed budget is based on an average price of $38.

As written, the 2017 budget contains general fund reserves of 5.5 percent. But lawmakers have also agreed to give Gov. Martinez more authority to make spending cuts and draw another 1 to 2 percent from reserves so she wouldn’t have to call a special session.

Colleges and universities, which are seeing enrollment drops, would see the biggest appropriations decline in 2017 of about 2 percent. Primary education sees a small boost with some of that going to increase salaries for more advanced teachers by $2,000 a year. Other increases are set aside for the departments of Public Safety and Corrections, the Children, Youth and Families Department, courts and the Office of the Public Defender.

On Medicaid, the state estimates the program needs $75 million more for 2016 and 2017 to fully pay for the expansion of new enrollees under the Affordable Care Act. The budgets are leaving that $40 million short.

It directs the Human Services Department to reduce projected spending in the program, which provides health-care coverage for 37 percent of the state.

The budget also directs the department to cut reimbursement rates paid to Medicaid providers, including rescinding a rate increase to primary-care physicians.

Some $107.4 million would go into the Medicaid behavioral health care program that serves 160,000 New Mexicans, a 1.7 increase from the current budget. But the budget also calls for the state to seek reduced reimbursement rates to behavioral health care providers.

On the Senate floor, Sen. Cisco McSorley, D-Albuquerque, asked Smith which providers would see the lower reimbursements.

“Everyone,” Smith replied.

Jeff Dye, president of the New Mexico Hospital Association, said Monday that “down the road we’ll have further difficult discussions with Human Services” as the 45 hospitals across the state absorb the reductions.

Those hospitals might have to reduce programs, cut jobs and slow down construction projects, Dye said. Some of his group’s hospitals see 5 percent in revenues from Medicaid while others see more than 50 percent in Medicaid revenue, he said.

Just 10 weeks ago the state was forecasting up to $232 million in new revenue for 2017. When the session convened in mid-January, most of the agency budgets had already been drafted to meet that guidance.

Then on Jan. 27, the House Appropriations and Finance Committee was told to revise its forecast, and use $30 million of new money as a benchmark. Since then revenue tracking data suggests a broader collapse of spending in the state that is eroding both GRT tax receipts and other streams such as corporate income tax.

Smith said the budget passed Monday reflects the latest information he obtained from the state Department of Finance and Administration last week — negative new money of $95 million. The spending reductions are a fraction of that due to the one-time sweeps and fund transfers.

Still the swing shows just how reliant the state remains on the energy sector.

George Muñoz, D-Gallup, said the federal-government stimulus money prevented steeper cuts during the 2009-10 downturn. But lessons have still been unheeded. “We need to diversify our economy and we need to do it rapidly,” he said.

Sen. Steven P. Neville, R-Aztec, said the Senate Finance Committee agonized over the spending levels and “there are a lot of reasons to vote against this bill, things we’d all like to fund better,” he said. In the end, however, it is a compromise between Republican and Democratic lawmakers and Martinez.

Before the vote, a handful of senators criticized Gov. Martinez for not coming forward with even a short-term revenue boost to avoid program cuts.

Smith is among those who approached House leaders offering to sponsor a 10-cent a gallon gasoline tax that could sunset. It would raise $140 million for the general fund the first two years and then be dedicated exclusively for roads.

“I was ready to go if they requested it,” said Smith.

They didn’t.

“We’re not happy campers right now in the Legislature having to deal with this budget,” said Sen. Mimi Stewart, D-Albuquerque. But she said Democrats are not going to move a tax increase that would derail the budget or face a certain veto. “It’s hard to just act on on our own when we hear nothing from the fourth floor,” she said, referring to Martinez.

McSorley was the lone dissenter on the spending plan.

Contact Bruce Krasnow at brucek@sfnewmexican.com. Staff writer Justin Horwath contributed to this report.