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State will need help to get out of the hole


In the wee hours of the morning on Feb. 19, the New Mexico House of Representatives voted to give final approval to a $7.6 billion state budget, an increase in spending of about 8 percent from the previous year.

Along with increases in education spending that had been mandated by a recent court ruling, the budget also provided a 4 percent salary increase for most state workers. The original plan was to give a smaller increase to workers other than teachers. But with so much new money available, lawmakers decided they could afford to be generous.

This was the second year in a row that Gov. Michelle Lujan Gisham came into the legislative session with revenue projections anticipating a surplus of hundreds of millions of dollars, thanks to the booming oil and gas economy in southeast New Mexico.

I had started to wonder if advances made by fracking might have made Lujan Grisham immune to the boom and bust cycles that have plagued governors before her.

But, in the 21 days between when the budget was passed on Feb 19 and when it was signed on March 11, all of the expectations and assumptions that the revenue estimates had been based on crumbled.

On March 8, Saudi Arabia began flooding the market with cheap oil in response to a price war with Russia, sending prices tumbling worldwide. 

Revenue from oil and gas production accounts for more than one-third of the state’s budget. 

It is estimated that for every $1 change in the price of oil, the state will gain or lose $22 million. The budget is based on assumptions that oil would remain at more than $52 a barrel. At one point Monday afternoon, April 20, the price fell below $0 a barrel.

On March 11, the same day that the governor signed the budget, the first confirmed case of coronavirus was reported in New Mexico. That would quickly result in the isolation orders now in place that have shuttered state businesses.

Within four days, the state saw its most important industry devastated by a global political dispute, and its entire economy shut down by a global pandemic.

The budget did include money for reserves, bringing that fund up to about $1.7 billion. That will help soften the blow, as will vetoes made by the governor to capital-outlay projects and a bill to beef up the retirement fund for state workers.

But that will only help put off the difficult decisions that are still to come. Senate Finance Committee Chairman John Arthur Smith has said the Legislature will likely need to call a special session to deal with the budget shortfall, something they have done before when the oil and gas market turned sour, but never with these kinds of health challenges.

Unlike the federal government, the state must balance its budget each year. And, there is just no hope to cut our way out of the red without enormous help from the federal government.

Cities will need help too. Counties can still collect property taxes, but cities will see a big drop in gross receipts tax collections. And, both cities and counties will see an increase in expenses as they help those most in need.

Fiscal concerns remain secondary to the ongoing life-and-death battle against the virus. And thus far, the governor and other state and local leaders deserve credit for preventing the death and devastation we see happening every day in other states.

But our state lagged behind others economically going into the crisis, and we’ll have a deeper hole to dig out of once it’s over.

Walt Rubel can be reached at waltrubel@gmail.com