Happy Days Are Here Again?

Source: Legislative Finance Committee hearing brief

Santa Fe is “on track to have $199 million in ‘new’ money available in the coming fiscal year.” Next month, “lawmakers will be heading into a session with a small cushion of new money that can be used to increase reserves or restore some spending cuts to government programs, including public education.”

Fiscal problem solved? Maybe. Maybe not.

Dig a little deeper into the Legislative Finance Committee’s hearing brief presented earlier this week, and you’ll discover that optimism should be tempered by caution. Here are some facts that haven’t received as much attention:

* The “recent rebound in revenues is based to a significant degree on the recovery of the oil and gas industry, which is highly volatile.” The price of a barrel of West Texas Intermediate could soar into the $60-$70 range, but it could tumble back under $30 — where it was as recently as February 2016.

* Tax perks for pols’ favored companies/industries pose a big risk. LFC analysts warned that substantial “potential exists for unforeseen increases in the cost of tax expenditures to state revenues. In recent years, several tax expenditures had larger fiscal impacts than initially estimated, significantly contributing to revenue estimating error. In some cases, the revenue impacts exceeded initial estimates by up to an order of magnitude, requiring changes in statute to curb the impact.”

* The nation’s “economy is running at its full potential for the first time in a decade,” with low unemployment and a soaring stock market. But the good times might not last. Recessions have not been outlawed, and with such an underdeveloped private sector, New Mexico’s fortunes are tied to how the U.S. economy performs.

* Recession or not, to the extent that New Mexico is experiencing any job growth at all, lower-paying positions are replacing lucrative employment. As the chart below shows, even the LFC is predicting that manufacturing will continue to decline in the next few years. Leisure-and-hospitality jobs are slated to keep expanding, as are positions healthcare/social assistance.

Source: Legislative Finance Committee hearing brief

* On the spending side, because New Mexico pols refuse to address the deep impacts of the state’s social pathologies, pressure is always relentless for more “education” and “human services” expenditures. The burden of Medicaid expansion will only intensify. The Children, Youth and Families Department wants a 10 percent increase for the next fiscal year. And armed with a dodgy analysis of K-12 spending, “for the children” lobbyists will be pressing hard for huge boosts to government schools’ revenue streams.

There’s no question that, for the time being, New Mexico has weathered the worst of its fiscal crisis. (The LFC’s hearing brief documented $605.3 million worth of “solvency legislation” — “sweeps,” tobacco-settlement funds, tax tweaks, deferred payments, and capital-outlay adjustments — needed to balance the books in the last fiscal year.) But the Land of Enchantment is hardly “in the money,” and it shouldn’t behave as if it is.