Tuesday, January 11, 2011

Change You Can Xerox: Guv Budget Mimics Legislature's, Plus: More On The Union Pacific Deal, And: Back On The UNM Beat 

It may be hard core fiscal conservatives, not die-hard liberals, who will be most displeased with Governor Martinez's first budget. She hews doggedly to the middle of the road in the $5.4 billion plan, belying campaign pledges of bold change, but avoiding politically perilous confrontations with the Legislature that could sink them both in the popularity polls.

The budget reinforces the old adage that in New Mexico the political gold is mainly in the center of the spectrum, even when a Republican is in charge. But Martinez's move there clashes loudly with her campaign which contended the state was a financial and ethical wreck. This budget does much less to shake up the status quo than her public expected.

For example, rather than eliminate the state film tax rebate--a favorite whipping boy of the GOP right--she proposes to reduce it from 25% to 15% where it was originally set. The sighs of relief among film backers was audible and they will now work with the Legislature to keep it all or near 20 percent.

Her overall recommendation that state government spending be reduced 3 percent mirrors that of the Legislative Finance Committee (LFC). That can neither be called Draconian by the liberals or qualified as "bold change"--her campaign slogan that raised hopes among the fiscal hawks. But it does avoid throwing people out of work and will also prevent marches on her office by angry parents and their school-aged kids. (The complete budget is here.)

Susana will be her toughest--and most satisfying to her conservative base--when she fights against regulations she sees as stifling the business climate. These fights will be brutal, but played out more among special interest groups (and probably the courts) rather than the general public. The war cry was signaled with a teenage sized cut she proposed for the state environment dept.

Sweeping reform of state government will not be in the cards when the Legislature goes into session next week, but Martinez has won plaudits for setting a frugal and responsible tone for future spending, even if she is going only for a field goal and not a touchdown.

And it's not as if government has not been pruned and downsized. The state budget peaked at $6 billion under Big Bill. It started out at under $4 billion when he took over in 2003. We're now coming in at $5.4 billion for the budget year that starts July 1, a ten percent haircut.

But conservatives and reformers were hoping for more. Much more. But because state revenues have stabilized they are not going to get it. In fact, Martinez almost keeps her campaign pledge to avoid cutting public education. She nicks it for only $30 million and says most of that can come from "bureaucracy."

No politician--Republican or Democrat--wants to inflict severe pain on the people who vote for them. There are no votes in it. The fiscal hawk wing of the GOP will have to be happy with what they knew they already had--no tax increases.


As we noted above, Susana again throws a bone to the oil and gas interests as she hits the environment department budget much more than other agencies. And while public education is spared the knife, higher education comes in for a 5.2 percent trim, although NMSU in Las Cruces appears to fare better than UNM.

The proverbial elephant in the room for New Mexico as well as most other states is the exploding cost of the state administered Medicaid program for low-income citizens. The Guv and the LFC both kicked the can down the road. Martinez provides only $10 million for new growth in the next budget year and the LFC about the same. That's not going to cover it.

Medicaid cuts are coming unless there is a big rebound in state revenues. One capitol budget watcher tells us at least $50 million will have to be chopped. Lower payments to health care providers and cuts in medical services that are not mandated by the Feds are probably both in the cards. But when it comes to Medicaid, we still appear to be better off than many other states.

As for the actual size of the shortfall being addressed in the Martinez budget, it is not $450 million, although the administration seems fixated on that number. There's more punch in saying you resolved a $450 million shortfall than one in the low $200 million area, which is what this is. But when didn't politicians play with the numbers?

The actual cuts from the 2011 budget by both the LFC and the Guv come in at less than $200 million. That's much less than many feared and signals that the state's economic free fall has hit bottom and we may even start to get a little growth.

State government employment, already down about 9 percent from its peak, will continue to shrink, but mainly through not filling vacancies, not through layoffs and furloughs. ABQ State Rep. Larry Larranaga made the no layoff call on the blog a couple of weeks ago and he was right. The Guv wants public employees, excepting school teachers, to pay more into their retirement plans. That will raise millions and avoid layoffs and furloughs.

While the new Governor treaded cautiously in relation to her campaign rhetoric, it should be noted that she and her team had little time to prepare. As they gain their footing, we could see more aggressive moves in the months and years ahead. For now the Governor and Finance Secretary May have given us a moderate budget document that puts distance between the campaign and the business of governing.


Reader Bill Hume writes on the proposed gross receipts tax exemption for locomotive fuel for Union Pacific if it expands its El Paso operations into Santa Teresa, NM:

The UP trains currently refuel in El Paso or elsewhere--not in New Mexico. So, if in the future they refueled tax-free in New Mexico, there would be no state revenue loss attributable to that change.

Point taken. Our Monday blog--since edited--left the impression that the tax break would directly cost the state treasury. The break would cost us potential gross receipts revenue, not current revenue.

And reader Jim O'Neill comes with the background on Governor Martinez's first major tax break proposal:

This will be the third time around for the gross receipts tax break for locomotive fuel. Section 7-9-110 NMSA 1978 was enacted in 2007 and amended, at the railroad’s request, in 2008. The railroad’s problem is that the Legislature made the tax break conditional. No tax break until the railroad began construction on a locomotive refueling facility in Dona Ana County. Furthermore, the railroad had until January 1, 2010 to get the ball rolling.

What with the recession and other problems, no progress has been made on the refueling facility, so the statute expired. Hence the third act.

Thanks for the history, Jim.

Will the economic activity generated by the project--construction jobs and then some permanent jobs--justify this tax break? And how much is this exemption? Also, the more we narrow the application of the gross receipts tax, the higher it must go on those who do pay it. The UP break may very well be justified--and as noted above it has been passed before---but those are the questions for lawmakers who are faced with cutting public education, higher education and Medicaid.


Another reader thinks we should be more concerned about losing the UP project than our recently expressed concern about losing the southern Spaceport:

With all due respect to Sci-Fi channel enthusiasts, I would be a lot more worried about being called "the State who lost the Union Pacific railroad station" than "the State who lost the Spaceport." Despite not having had its first commercial launching yet, this project looks like it's already "up in the air." Has the question ever been raised of what the Spaceport's financial future would be if the 500 or so reservations already booked were canceled all at once after a first flight scare?

The economic impact of a $400 million dollar private investment (the UP project) that uses technology that has been in commercial use since the days of Abraham Lincoln seems like a much safer bet than a "pretty cool" $200 million taxpayer-funded futuristic experiment that could either go wrong or become obsolete before we see any returns on our investment...


A University of New Mexico professor writes of the ongoing turmoil on the UNM campus and with UNM President David Schmidly:

..Schmidly is already gradually on his way out, and provost Suzanne Ortega also appears to be moving on too. Schmidly's term ends in 18 months, which may seem like a long time, but in a university setting it takes a full year to complete the search process for leadership positions...

Whether he finishes his term or not, it is critical to commence a search for UNM's next president by this fall, so as to avoid a year or two of interim leadership....

No matter what becomes of the bid-rigging suit, Governor Martinez needs to make sure the regents get rolling with a search for the next president by this summer. If managed well, a president could be selected by the end of 2011, and a new provost could be selected in Spring 2012. The new president and provost would both start in Summer 2012 and we could begin to move forward. That may seem like a long time to wait, but it's a lot better than waiting until 2013 to fill the president position and 2014 for the provost position...

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