Thursday, January 28, 2016

The State Budget Crashes Along With Oil; Years Of Tax Cutting Fever Come Home To Roost, Also: NM Recession Watch As Tax Collections Drop Across Board 

The Tax Cutters
What crashed the state budget? Simple. Crashing energy prices have cost the treasury millions in royalties and years of overzealous tax-cutting in Santa Fe.

The state's economy has been woefully mismanaged by both Democrats and Republicans and culminated Wednesday with the report that there will be only $30 million in new revenue for the next budget year that starts July 1 (not that anyone really believes even that token amount will come through).

In fact, there's a decent chance we will fall below the current $6.2 billion budget. The budget that was going to be $6.5 billion will now at best be the flat $6.2 billion. That's a real math problem considering that you need millions for increased Medicaid expenses alone. Says Gallup Dem Senator George Munoz:

I think when all is said and done, we’re going to have a deficit.

Susana says the state is on "firm fiscal ground." Well,  maybe if you consider quick sand solid terra firma.

The state's cash reserves will cover the most urgent shortfalls but there could be real pain for real people because of this budget bomb. The Santa Fe paper reports reserves are expected to dwindle from over $700 million last year to $379 million when the July 1 budget year starts. (The Journal says it's $477 million. It adds that the difference in cash reserve levels are proposed supplemental appropriations and that both numbers are technically correct.).

That's a reserve of 6.1 percent of the general fund and at a level that even we "big spenders" don't want to see drop too much more.

It's not only the oil bear causing the chaos but a drop in gross receipts tax collections across the board, a development that has put us in full-blown recession watch. We'll look for any thoughts on that from our list of No Bullshit Economists--Dr. Chris Erickson and Dr. Jim Peach at NMSU, ABQ's Dr. Kelly O'Donnell and the economists at the Brookings Institution.

Meanwhile, the structural problems that face the state are being ignored at the legislative session in favor of a 30 day cops and robber sitcom. That needs to be cancelled because once again, "It's the economy stupid."

Gov. Richardson slashed personal income taxes and was followed by Gov. Martinez wielding the knife on corporate taxes, all approved by compliant legislative Democrats. And both sides colluded to give so many convoluted tax credits and exemptions that no one seems to know how much they cost. And then they repeatedly appropriate money for capital outlay projects and leave hundreds of millions of it unspent. Mismanagement or malpractice?

It's not like state government is bloated out of control. We've had years of anemic state budgets and an austere Republican Governor and legislative leadership see to that. If we are going to do more than keep the lights on Santa Fe is going to have to talk about raising revenue. We know that these days that's like yelling the F word in church but here we go. . .

---The Legislature will have to start looking at hundreds of millions of  unspent capital outlay to shore up the general budget and provide breathing room. Las Cruces area State Sen. Joe Cervantes Wednesday introduced legislation that sweeps capital outlay authorized before 2013 and gone unspent into the general fund. He says it will compel legislators and local governments to evaluate old projects and ideally put that money to work right away with resulting jobs and a short term stimulus or risk having it used to solve the budget shortfall.

---The Republican-controlled House and GOP Governor would rather sit through a four hour Bernie Sanders speech than consider a slight roll back in the big personal and corporate income tax cuts but that's what they need to do.

---Maybe the R's, who live and die by a no tax increase pledge, could fade the heat by repealing some of the myriad tax credits and exemptions?

We've been to this movie before. Back in the 80's we had the Big Mac tax cut which was followed by a crash in energy prices which caused the Legislature to repeal the cut. But that was when economic policy was flexible. Today it's cemented in ideology, mainly by the radical Republicans but with the aid of fearful Democrats who also have made any mention of raising revenue politically poisonous.

There are many more chickens that will be coming home to roost from the ongoing transformational changes we are seeing in this state's economy. This budget bomb is only one.


It may just go on forever. Last night, as expected, the state House approved driver privilege cards for undocumented New Mexicans, not the restricted licenses Dems favor. The bill goes to the Senate. A deal in the final days? It's looking dim. Driver's licenses forever!


Veteran NM journalist Janet Blair writes:

The conservatives keep talking about how they need all those billions in the state's Land Grant Permanent Fund for a “rainy day.” Geez, Joe---with our kids highest in poverty, etc., the litany of economic downpours seems to be unrelenting! If this isn’t a rainy day, what the hell would be? Cut lose with the capital money!! Dip into the Permanent Fund for our kids! Where are real leaders in this state? Makes me sick.

As for Janet asking where the real leaders are, it seems they left the building with Elvis.

As always, we welcome your comments, analysis, opinions and expressions of existential angst.

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