Monday, January 12, 2015

Our Real Deal Biz And Econ Coverage: The Rabbits Feet Come Out As Santa Fe Looks To Luck To Bail Out The Budget, Plus: An Elephant And Intel In Rio Rancho 

Senate Finance Chairman John Arthur Smith
Let's start the new week with some real deal biz and economic coverage. First up is that latest state budget outlook.

The Santa Fe bean counters could not bring themselves to lower yet again the estimate on how much new money lawmakers will have when they start drafting a budget this month for the fiscal year that begins July 1. You can hardly blame them for keeping their fingers crossed and carrying rabbits feet around. Unless energy prices rebound, they are in for a world of hurt. . .

The crash in oil prices has so shaken the Roundhouse they've given up on soothsaying. Instead of predicting what final state revenues will be, the Legislative Finance Committee (LFC) is offering up widely varying scenarios. One has $141 million in new money available. Another assumes revenues actually drop 1 percent over this year's. How legislators legislate into that black hole of ambiguity is anyone's guess. You can already hear the catcalls: "My revenue estimate is better than yours!"

The LFC budget proposed for the rose-colored glasses crowd totals around $6.3 billion, not much more than this year's $6.2 billion. That's the best case scenario. To get there they put aside a budget reserve of about 8 percent of revenue, instead of over 10 percent. That's still more than $500 million but it could go lower if oil stays in the tank.

If for the next year oil prices average where they are today--just below $50--the rose colored glasses are going to crack. The "new money" projection will be wiped out. If oil pops up so does a state budget that gets nearly 20 percent of its revenue from oil and gas royalties and taxes. (By the way, natural gas remains in a bear market and isn't about to make up for the oil losses).


Taking a look back shows us just how flat on its back this state's economy has been. General fund revenues for FY08 totaled $6.041 billion. Here we are 8 years later with the optimistic budget at only $6.3 billion. That's a mere 4 percent increase in all that time. Of course, all of that increase and more was long ago wiped out by inflation. Incredible.

Not that the entire budget stagnation was caused by the economic wreck. It could be argued that before the debacle began the state recklessly cut income taxes on high earners as well as the capital gains tax, although we did have a sales tax increase along the way.


Few doubt that there will be another bull market in energy prices. But with the advent of renewable energy, increased oil supplies from fracking, electric cars, millenials driving less and fears about climate change, you have to seriously entertain the thought that oil has entered a new era and with it the New Mexican budget and government. The issue is whether the next oil bull will be as powerful and as long-lasting as those of the past 80 years and that have been the ace in the hole for this small, poor state.

It's the money collected from energy and invested in the stock market that is largely responsible for giving us a State Permanent Fund of over $14 billion--one of the largest of its kind in the world. We now get an annual revenue stream of over $750 million a year from the state's two permanent funds.

It seems mythological when you hear that someday--when the state's energy resources are depleted--that the Permanent Fund will be there to save us. For the first time in state history that doesn't seem so imaginary.

If energy prices enter a long-term pause and no economic substitutes are created, the next generation of New Mexicans could depend even more on their grandparents' financial legacy to keep the trains running.


Talk about ignoring the elephant in the room. How can the mayor of Rio Rancho give an in-depth economic briefing and not even mention the precarious outlook for Intel, the city's largest employer and major economic driver? Since 400 were laid off at the chipmaker last year, rumors have been rife that Intel is out of here, meaning the 2,900 remaining jobs there are at risk. Can you tell us anything about that, Mr. Mayor?

Well, dealing in cold, hard reality is the last thing on the to-do list of the politicos. But what is happening is quite obvious. Rio Rancho continues to attract call center jobs (which is okay) but it has no idea what to do to replace the high-paying Intel jobs as they gradually disappear.

The economy that is shaping up to replace the one driven by Intel and its billions is based on service sector jobs--call centers, restaurants and retail. Those are traditionally among the lower paying jobs.

The Rio Rancho experience is emblematic of the metro area as a whole. No better example is the reconstruction of Winrock Shopping Center, smack dab in the middle of ABQ and perhaps the most valuable retail real estate in the state. The stores that are going in there are aimed squarely at consumers in lower and lower-middle wage brackets--Nordstrom Rack, DWS shoes and Ulta cosmetics, to name a few.

It's not just happening here but across the nation as affluence is spread among a smaller segment of the population and as high-paying jobs dry up. The mayor of Rio Rancho knows that, but it's not polite for him to say it. We don't mind doing it for him.

This is the home of New Mexico politics.

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(c)NM POLITICS WITH JOE MONAHAN 2014. Not for reproduction without permission of the author
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