Thread: New Mexico Faces Zero Cash Reserves

New Mexico Faces Zero Cash Reserves

Friday, August 14, 2009 11:45 AM

ANGEL FIRE, N.M. -- New Mexico's revenues are down more than $700 million over two years, and the shortfall is large enough to wipe out the state's cash reserves, according to a new revenue forecast delivered Friday to legislators.

The projections forecast state revenues will drop to about $5 billion in the current budget year, which started in July. That's $433 million less than what had been anticipated when lawmakers enacted the budget.

Revenues also came up short last year, about $309 million below what had been previously forecast. Final revenue figures for the just-ended 2009 budget year won't become available for several months.

Most of the revenue decline over the two years is from weaker income and sales tax collections that economists blame on the national recession.

In the past, New Mexico has been slammed by falling revenue from oil and natural gas production. However, economists didn't roll back energy revenues in the latest forecast, although they warned that the state's finances remain at risk from volatility in oil and gas prices.

The hole in the budget is so large that lawmakers will need to meet in a special session, probably in October, to fix it. Options include cutting spending, canceling previously approved capital improvement projects and looking for ways to raise revenues -- possibly by repealing past tax cuts and exemptions.

Salaries could be cut for public employees and educators, but educational groups are lobbying to protect schools from deep cuts, while government employee unions say legislators should consider tax increases rather than furloughing or laying off workers.

Lawmakers will dip into the state's cash reserves to close the budget gap, but there's not enough to solve the problem. The two-year revenue decline is so great that it would drain the rainy day funds -- and still leave a deficit at the end of this year -- if nothing else is done.

The state had planned to maintain reserves of more than $600 million by the end of the last budget year, equivalent to more than 10 percent of state spending, a target considered financially prudent because of the volatility in revenues.

According to the Legislative Finance Committee, lawmakers will need to come up with nearly $360 million -- through spending cuts or other actions -- to restore reserves to 6 percent in the current 2010 budget year.

The financial problems are bigger than in January, when the Legislature convened and had to quickly pass a package of measures to prevent a deficit in the 2009 budget. Agency budgets were trimmed by up to 5 percent, capital projects were scrapped and the state required corporate income tax payments on a speedier schedule to provide a one-time revenue boost. Gov. Bill Richardson also imposed a hiring freeze and cut pay for appointed workers in his administration.

Even after those reductions, the Legislature and Richardson agreed to cut spending in the current fiscal year by about 6 percent below spending in the 2009 budget. Now lawmakers must pare things back even more.

Revenues are down by $1 billion from peak collections of $6 billion in 2008, and economists told lawmakers that it could be 2014 before revenues approach that level again again.

The revenue forecast was prepared by economists for the Richardson administration and the Legislature. The report was outlined to the Finance Committee at meeting in Angel Fire, a resort community in northern New Mexico.

http://moneynews.newsmax.com/economy/ne ... 47947.html

The City of Miami is in the same position and the fools gave money to build a baseball stadium for the Marlins in Little Havana. Miami Dade also did and employees have to take a 5% pay cut and there is talk of increasing property taxes.