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Monday, August 17, 2009

Special Recession Session Won't Be One Day Wonder; Lawmakers Want More Time, Plus: My Special Report On State Budget Crisis, And: A Missing Mayor 

There is reason to have optimism that Big Bill and the Legislature are not that far apart on how to handle the state's budget crisis, but they are a world apart on how long the special session should be that tackles the huge shortfall in state revenues. Key lawmakers are indicating that the session will likely last from five to seven days, not the one day rush job Bill wants. The Guv is likely to call for a special in October.

A bipartisan group of lawmakers will be assembled by the Guv to cut a deficit closing deal before the session begins, but there is still the issue of public input and public perception. Lawmakers want to look deliberative--not slapdash--in addressing one of the worst fiscal messes in state history. Look for the idea of a one or two day special to fade as we go forward.

The Guv, not without cause, would like a one day wonder because it would keep the agenda tight and give little time for argument to develop. He would have greater control. But a small set of lawmakers--no matter how sound or bipartisan the groundwork they lay--is not going to speak for all 112 legislators on an occasion of consequence and perhaps one with some political danger.

LET'S MAKE A DEAL

The outlines of a deal are coming into view as the elected officials begin grappling with a shortfall of $433 million for the budget year that started July 1st as well as a $300 million gap left on the books for the budget year that ended June 30th.

Look for a multi-pronged approach from the Roundhouse, all designed with avoiding employee layoffs or furloughs.

A good chunk of the state's $570 million in cash reserves will be gobbled up. It appears when the dust settles we will likely have reserves that total 6% of the budget, not the 10% plus levels we have grown accustomed to. Big Bill Department of Finance Secretary Katherine Miller seems particularly anxious over the reserve issue. While the Guv and Legislature held a lavish six year spending party, everyone took time to overfund the reserve--to the tune of as much as 13 percent of the budget. This was meant to calm nerves and cover with a fig leaf the bare fact that we were spending ourselves silly. We were spending ourselves silly. We just had so much cash coming in we could overfund the reserve fund. Not now.

WHERE THE KNIFE WILL CUT


Prominent legislative thinking is in line with the Governor's on the key item--avoid layoffs and employee furloughs. But we are probably looking at something resembling an across-the-board cut in all state agency spending. The shortfall is too large and time too short to go cherry picking for the immense savings to balance the budget as required by the state Constitution.

Capital outlay--or in layman's language--construction projects--will again be trimmed as they were in this year's regular legislative session. The money would be shifted over to the general fund. However, much of the low-lying fruit has been picked here. The projects that lawmakers will look to deauthorize will not be as frivolous as the first batch. Turf battles could erupt.

We're told there are about 1,000 state cash accounts for various state agencies--why so many is an interesting question--that will be trimmed of excess cash as lawmakers look in normally obscure pockets of state government to pick clean everything but the lint to get this budget to balance.

There will be another revenue forecast before the October special. If it shows the fiscal black hole is not deepening, the state should be able to avoid personnel cuts; if it's worse, layoffs and furloughs could come back into play.

WHY WE'RE HERE

A wild spending party financed mostly by skyrocketing royalties from ludicrously high oil and natural gas prices set the state up for a steep fall. Oil and natural gas prices have now stabilized, but the Great Recession has ravaged income and sales tax collections. Job losses are at a 50 year high and the impact on revenues is inescapable.

It is true that state government has grown some 50% in the past six years. (Earlier reports pegged the increase at 40%. It depends how you measure it. In 2003, when Bill took over, the budget was about $4 billion. It peaked at about $6 billion, a 50 percent increase.) But before the lynch mob forms for Big Bill, keep in mind that the Legislature--including just about every Republican--also drank from that boom era punch bowl and voted for the fat budgets of the very fat years.

WILL IT EVER BE THE WAY IT WAS?

No, it won't be the way it was--at least not for many years. State revenues, which peaked at $6 billion, are now down to around $5 billion. They will eventually stabilize, but barring a world energy crisi that spikes oil and gas prices and leads to a production boom here, we are in for a slow to no-growth era.

Our manufacturing base, symbolized by the collapse of Eclipse Aviation and the slow employment declines at Intel, is not adding jobs.

Funding for the national laboratories--huge drivers of the economy--not necessarily because of the percentage of the work force they employ--but because of the huge payroll they bring into the state--are in a no-growth mode (or worse) for the foreseeable future.

The clincher is the availability of credit. Loose home equity loans and high credit card limits for consumers are relics of the past. It will be a long, slow climb out of the hole for New Mexico consumers.

THE NEXT ONE


Keep Don HarrisThe next governor will look at the Rail Runner, Spaceport and the excessively padded state payroll as if they were visiting a museum. Projects of such a grandiose scale will be symbols of the era of plenty, not that they didn't have merit.

As for the padded payroll, some quick calculations done over the phone with ABQ GOP State Senator Sue Wilson Beffort shows that the over 450 "exempt" employees--those whose jobs are awarded by the Governor and whose numbers have soared under his watch--are costing around $30 million a year. No one wants to throw people out of work in this environment, but the next governor may have no choice but to start off loading the political hires if they want to get control of the budget.

YOUR TAXES

Beyond "lean and mean," in the coming year look for debate over the myriad of tax credits that are on the books. Santa Fe is going to be looking for revenue without directly raising taxes. While tax increases that directly impact you may not be likely--legislators still fear raising them--the era of tax cuts is over in New Mexico. You can make book on that.

LOOKING FURTHER AHEAD

While the crisis in the budget extending to June 30, 2010 appears to be on track for resolution, the budget year that starts July 1, 2010 already looms. Federal stimulus funds will have mostly been spent. If state revenues begin to grow, more budget cutting will be avoided. But there is already concern that reduced production of oil and natural gas could cause more headaches. Also, the state estimate for what natural gas will cost in the next year ($4.30 per thousand cubic feet) seems high to some energy experts. (Its been mostly below $4 this year). If the price expectation isn't met, there could be more trouble. But everyone has their fingers crossed that the general economy will start to grow next year, thus naturally easing the budget crisis by starting tax collections flowing again.

THE WAY FORWARD


Smaller, leaner government appears to be our future, and that won't be all bad as there is plenty of excess to be rid of from the Great Boom. However, the crushing social needs of this economically poor state remain stubbornly unsolved even after literally billions of dollars was thrown at them in the last ten years. Future lawmakers and taxpayers will demand more accountability and cost-efficient means of attacking such sore-thumb issues like the poor high school graduation rate which stands at a dispiriting 54 percent.

To quote the late capitol reporter Ernie Mills, "Don't say we didn't tell you."

A MISSING MAYOR


ABQ Mayor Marty went missing in action at the North Valley Coalition mayoral forum we moderated Thursday night, and that gave ammo to his critics who say he is trying to walk the October 6 election into the end zone. A Berry campaign spokeswoman told us that there are about 11 such forums scheduled between now and Election Day. That is fewer than past cycles.

Chavez appears willing to take some heat over missing this latest one--and probably a couple of more. He canceled the North Valley event, saying he had an interview with the ABQ Fraternal Order of Police. By Chavez not showing, rivals Richard Berry and Richard Romero were deprived of a high-profile opportunity to beat up on him. Still, we would be surprised if Chavez, seeking a fourth term, was not in attendance at most of the September forums. If not, his absence might become a campaign issue. Meantime, the next big event in the race will likely be the unveiling of campaign TV spots in late August.Early voting in the mayoral election begins the first week of September.

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(c)NM POLITICS WITH JOE MONAHAN 2009
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