Local governments need to act on budget now

The following appeared in the Las Cruces Sun-News on May 24, 2020.

Las Cruces Sun-News

Much of the focus in this virus-induced economic downturn has been on Gov. Lujan Grisham and her efforts to slow its spread statewide. It has taken Lujan Grisham a very long time to publicly address the very real economic issues created by her economic shutdown policies and the precipitous drop in oil prices.

As we know by now New Mexico faces unprecedented economic issues with the shortfall totaling $2 billion (or more) out of a $7.6 billion budget.

Critically, while the entire country has been economically impacted by the crisis, New Mexico will see a “double whammy” from the virus and depressed oil prices. Prices have rebounded from a temporary drop below zero, but the industry accounts for 40 percent of the state’s tax revenues. The oil price decline and (likely) slow recovery is going to depress tax revenues statewide — and across all levels of government — for years to come.

We haven’t heard much about how cities and counties will be impacted economically. Cities rely heavily on gross receipts taxes. For example Las Cruces got 76 percent of its 2019-2020 revenue from GRT. Another 12 percent came from property taxes. Santa Fe, a very different city economically, received “just” 28 percent of its revenues from the GRT and 3 percent from property taxes.

County governments rely more heavily on property taxes. Bernalillo County’s budget, for example is 49 percent GRT and 45 percent property tax while Doña Ana gets 32 percent of its budget from GRT and 26 percent from property taxes.

Here are a few points to consider:

  1. Gross receipts taxes are the most volatile tax due to rapid swings in economic activity. Property taxes are more stable because property values change more slowly.
  2. The drop in GRT has been exacerbated during this shutdown because Bill Richardson and the Legislature eliminated taxes on groceries while raising the rate on everything else. Since grocery stores are one of the few businesses open during this crisis, most current economic activity has been untaxed.
  3. GRT-reliant cities/counties (especially those most reliant on GRT like Las Cruces) should be acting right away to address impending downturns.

While there have been some notable exceptions, many local governments in New Mexico appear to have taken a “head-in-the-sand-approach” to the fallout from this economic downturn.

In mid-April right in the middle of the outbreak Bernalillo County passed an absurdly bloated budget with 7 percent growth. Las Cruces and Doña Ana haven’t reacted in any public way so far although the county’s Twitter feed is full of hiring notices (nothing about budget cuts or layoffs). The city of Las Cruces has made no public announcements of budget measures being taken to stem the likely tide of red ink.

Interestingly, Santa Fe, often seen as a bastion of liberalism has already announced a spending freeze that is projected to save some $25 million, but the City faces a deficit of $100 million according to recent reports. Rio Rancho has also shown sensitivity to budgetary reality by furloughing 112 “nonessential” employees, about 15% of the city’s workforce. Reaching beyond New Mexico’s boundaries the city of El Paso has adopted pay cuts for city employees for 12 weeks and furloughs for others.

New Mexico’s local governments are not created equal. Some have big budgets driven by economic growth and relatively wealthy populations; some do not. But tough times are ahead for all due to the virus situation and the massive hit to oil production and tax revenues paid by the industry. Growth is out of question and it is shocking that all local governments haven’t instituted hiring freezes to at least avoid adding to the number of employees that must be paid with dwindling revenues. Cities and counties that are not actively trimming their budgets yet need to be asked “why not?”

A proactive approach to streamlining now will head off far more difficult and painful decisions later. Local governments need to act now.

Paul Gessing is president of the Rio Grande Foundation.