01-23-17 RMFU: In New Mexico, Oil Revenue Trends Down As Red Ink Adds Up

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rmfu-in-new-mexico-oil-revenue-trends-down-as-red-ink-adds-upRMFU: In New Mexico, Oil Revenue Trends Down As Red Ink Adds Up

Clark de Schweinitz – Farm to Table Board member & Special Commentary for the RMFU LegisLetter

New Mexico’s public coffers are much depleted, and it is not clear at this stage how they will be replenished.  Solvency, and its dreaded counterpart, insolvency, is the lead-off issue facing the New Mexico Legislature—maintaining solvency is obviously fundamental, especially in a state whose constitution prohibits public debt.  The generally assumed reason for this situation is the fall-off in oil and gas prices, which usually make up one-third of the state’s revenue.  Some believe the solvency problem is the result of not enough diversification in New Mexico’s economy.

Yet insolvency stares the new Legislature in the face.  In fact, even for the current fiscal year which ends in June of 2017, there is already a $68 million short fall.  Just a few months back a Special Session was held to deal with the situation and create a “solvency plan.” This didn’t completely work out, as evidenced by the current deficit.

Dictionaries have several definitions of ‘solvency,’ and one commonly used is the “capability of meeting financial obligations.”  For now, the state is paying its obligations and that is about all. Keep in mind the end of fiscal year is not that far away.

Since the Special Session in October, there has been no new plan to make the state solvent and able to meet its debt obligations by July 1. One interim committee has held meetings and an emerging strategy may call for relying on a whole bunch of techniques that seem to fidget with arcane financial moves to pump up the General Fund. Examples include a series of ‘sweeps’ of any fund balances that can be found in state accounts; depleting the state’s reserves below a prudent level (these reserves are now at an all-time low); ‘”sun setting” some programs and grabbing their balances; and even suggesting reducing the take-home pay of salaries for public employees so more can go into the state’s share of retirement fund accounts (which are already underfunded and this concept already is facing  much opposition.

Thus, as the 2017 Session opened this last week, “solvency” was and remains a predominant keyword and the leading topic of discussion. Governor Susana Martinez (R) has said she wants to see a “serious” solvency package before any other bills are passed and approved.  She apparently includes consideration of a new budget for the 2017-18 fiscal year—that that budget must wait as it is overshadowed by the current solvency problem.  The emphasis on solvency could mean that the deliberate development of the budget, taking into consideration of all the options and even thinking about new revenue sources, would be delayed and perhaps affected in adverse ways. The House and Senate have already put long hours during the first week of the session.

Dictionaries also give another definition of solvency, and it’s from chemistry—where a substance (usually a liquid), is capable of dissolving another substance.  The Legislature may face the prospect in that its solvency problem “dissolves” the “substance” of a meaningful budget for the coming year.

Yet the Session has just started with the November election bringing with it just over 20 new, and presumably, inexperienced legislators.  The House is back in Democrat control and the Senate has a strong Democrat majority, but both chambers are led by new leaders, one of whom was quoted in the paper that he had met with the “Chief” only three times in the past six years.

Their stance entertains the notion that new revenue has not been discussed. Governor Martinez is in her last two years in office and she is adamant in her position of “no new taxes” preferring more “belt-tightening” in state expenditures. This sets up a real challenge, at least at first blush, for a credible budget to come out at the end of the 60- day session.

There is one more definition of solvency deserving of consideration, one that is not used as often as the others given above: solvency as something that solves or explains.  Perhaps a credible correcting of the State’s solvency problem early on in the Session will, over the next two-month period, eventually inspire the ensuing legislative proceedings and even a new budget will emerge that is concrete in specifications and will work given the real world numbers at hand.

Future RMFU LegisLetters will update these efforts.

Rocky Mountain Farmers Union is a general farm organization, whose members live in Colorado, New Mexico, and Wyoming.