State’s fiscal crisis ‘is not going away’

After months of violating the state constitutional mandate to maintain a balanced budget, state lawmakers Thursday approved spending cuts and other solvency measures to wipe out deficits for two fiscal years.

It took seven days in a special legislative session called by Gov. Susana Martinez to reach agreements on a wide-ranging solvency plan that tapped into unspent construction projects, swept money from account balances, and cuts spending on average 5.5 percent to state agencies and universities.

The Senate approved an initial package of bills within 12 hours of the session opening Sept. 30. House leaders took almost a week to pass their own version early in the morning on Thursday — as well as other more controversial bills focusing on crime, including reinstating the death penalty.

Despite different budget priorities for some agencies, the Senate concurred with House changes on the floor Thursday without going back to committee.

“ I think this is about the best job we can do given the time we have,” said Sen. John Arthur Smith, D-Deming, who chairs the Senate Finance Committee.

House Majority Leader Nate Gentry, R-Albuquerque, made no mention of the crime bills but called the session a success.

“While this package isn’t perfect, it’s fair,” Gentry said in a statement. “Now isn’t the time for brinksmanship, and I’m pleased we were able to get the job done.”

As approved, the measures bring $327.8 million in savings for 2017.

The highlights:

• $90 million from capital outlay projects that have been eliminated. Some of those will be reauthorized with severance tax bonds. Others are no longer viable.
• $96 million of money will be swept from other accounts into the day-to-day operating fund of state government.
• Spending reductions of $171 million. Lawmakers approved cuts at universities and community colleges of 5 percent, on top of the 2 percent cuts approved by lawmakers at the end of the regular session earlier this year. The House of Representatives had pushed for steeper cuts to higher education, including a reduction of 8 percent for The University of New Mexico.
• The transfer of $220 million in tobacco settlement money, of which $131 million is earmarked to close the 2016 budget gap.

Some revenue in the package can be relied on to help the state in future years. A tax package that closes some loopholes in two laws will bring in about $10 million in 2017 and $27 million in 2018.

But that is far less than the $45 million in the original measures approved by the Senate.

Gentry, a Republican ally of Martinez, made an unusual plea on the House floor late Wednesday to Democrats, asking them to pass the budget bills with “a super majority” — two-thirds of the 70 members — so the measures will become law as soon as the governor signed them. Without it, the bills won’t take effect until January.

Gentry said the state was at risk of bouncing checks if the deficits were not resolved. Some of the solvency measures passed with enough votes to take effect immediately, but the major bill that swept money from a tobacco settlement fund that was needed to balance the 2016 budget did not.

“We just don’t have the money to pay for state government,” Gentry said at a Thursday morning news conference.

But Gentry also said the Legislative Finance Committee does not think the emergency clause in the bills is essential, as long as they become law.

Gentry said he is aware that the Moody’s bond-rating agency has put the state’s credit rating on a “watch” status, pending resolution of the deficit issues. “We’ll watch that closely,” he said.

After lawmakers first heard about the budget deficits in summer, Gov. Martinez said she hoped the Legislature could be called back and reach agreement on a solution in a few hours.

But when Martinez called the special session, there were no specific recommendations from the governor’s office. It was the Senate that moved first with its budget fixes, a mix of both tax increases and spending cuts.

Within 12 hours in one day, the Senate passed seven bills to restore solvency, meaning the budget deficit could have been resolved then if the Republican-controlled House concurred on the measures. The House, led by Gentry and Speaker Don Tripp of Socorro, revamped the budget plans across the next six days, then sent them back to the Senate for concurrence.

Smith said Martinez has been delinquent in her fiscal obligations.

“The governor said before the session we would have an agreement. This is a failed administration in relation to job creation and fiscal management, ” said Smith, who has been monitoring the falloff in revenues since February. “If you want to talk about somebody dropping out of the process and being delinquent it was the administration.”

Smith said the governor will have to manage through the fact that some of the solvency legislation will not become law until January.

If money is not moved to the 2016 fiscal year budget before the end of the calendar year, state financial audits will show a deficit for that period.

House Republican leaders said the time in the session was worthwhile as what emerged was a better package that spared two important agencies — the Department of Public Safety and the Children, Youth and Families Department — of additional cuts.

Rep. Jason Harper, chairman of the House tax committee, added that the House package removed new taxes on Internet sales from large out-of-state companies such as Amazon. He said the taxes could have hurt families.

“We kept our promise to fix New Mexico’s budget deficit without raising taxes,” said Harper, R-Rio Rancho.

In approving the tax package, the House nixed the provision to collect taxes from Internet retailers. It also removed a cap on a tax credit used by companies that create high-wage jobs. The credit has paid out far more than lawmakers expected and been applied to businesses such as oil and gas companies that receive benefits in other parts of the tax code.

Martinez and other Republicans have agreed with efforts to scale back the measure. Democrats sought a cap of $24 million a year of payouts on the credit. That means companies that qualify might have to wait to receive their money, which can be as high as $12,000 per job.

The cap would save the state $25 million in the next two fiscal year. Overall House changes in the tax package reduced savings from $45 million to $10 million.

House Republicans argued that a cap on the credit sends the wrong message to businesses about predictability.

The House also removed the part of the bill that reduces funding to local governments under a complicated agreement.

The state actually has a criminal law that prohibits the Department of Finance and Administration and the Office of the State Treasurer from “knowingly” spending money that is not supported by revenue. Attorney General Hector Balderas had declined to enforce that law as the Legislature discussed a special session and finally received authorization for it from Martinez.

Legislators know they have to be back in January to try to forge a budget for 2018 with almost no reserve funds. An economist for the Legislature estimates that, with passage of special session bills, the general fund reserve at the end of 2017 will be under 1 percent of spending. That’s down from 11.7 percent in June of 2015.

As one Democrat, Rep. Jeff Steinborn of Las Cruces, said on the House floor Wednesday, “Our crisis is not going away.”

Contact Bruce Krasnow at brucek@sfnewmexican.com.

A prior version of this article incorrectly stated that lawmakers approved cuts at universities and community colleges of 5.5 percent, not 5 percent.