Collapse of oil prices means special session looms

The chair of the New Mexico State Senate Finance Committee said there is no question the state legislature will meet in special session later this year to deal with the budget crisis initiated by the collapse of oil prices.

“It’s not a question of if, it’s a question of when you’re going to have it,” said state Sen. John Arthur Smith, D-Luna, Hidalgo, Sierra, Doña Ana, who is in his 32^nd year in the state Senate and is the legislature’s most senior Democrat and second most senior member.

In conversations with the staff of Gov. Michelle Lujan Grisham in late March, Smith said he recommended holding the special session at the end of June or in July. By then, Smith said, the governor and legislators should have a better idea of where the state is financially and what financial relief the federal government has taken.

“I want to be able to look further down the road than say March, look at June and see what the future holds,” Smith said.

The collapse of world oil prices began March 8 when Saudi Arabia and Russia, two of the world’s largest petroleum producers, initiated a price war. Prices have declined further as a result of the reduction in travel caused by the worldwide COVID-19 crisis.

Even before the collapse, Smith said he was concerned by the state’s continued increases in spending. Smith said he did not object to the governor’s veto of $150 million in state general fund nonrecurring revenue approved during the 2020 legislative session. But, after the collapse, he said, “it became rather obvious to me that the problem was far more serious than vetoing $150 million.”

Smith said his “back-of-the-napkin” preliminary calculations show a state budget shortfall of up to $3 billion, depending on which economic model is followed and where oil prices stabilize.

With the economic situation in New Mexico and statewide caused by COVID-19, Smith it’s “the wrong time” to raise taxes. “You’re left with the dilemma of tapping into the reserve we do have and reducing unnecessary spending,” he said.

Smith, who was born at the end of the Great Depression (in 1942), he said, “so there was always caution exercised in the family. My contemporaries were brought up that way. That philosophy sort of molded the way we are today.”