As state lawmakers begin to debate where to cut spending or raise revenue, one legislator suggests a third way to plug New Mexico’s sizable budget shortfall.
New Mexico sits on a huge pot of money called the permanent funds, made up of minerals royalties and other revenues. Why not take advantage of that to help solve perhaps the most challenging budget crisis in years?
Lauded as an easy fix by supporters but derided by opponents as tapping into accounts that are supposed to be off-limits, the idea floated by Senate Majority Leader Michael Sanchez, D-Belen, is ginning up conversation among state lawmakers two weeks before the 60-day legislative session convenes in Santa Fe.
Essentially what Sanchez wants is for the state to put some of its permanent fund dollars in a new type of investment specifically created to lift New Mexico out of its current budget crunch.
Sanchez’s legislation would authorize New Mexico to issue up to $300 million in bonds. But instead of selling the bonds on the open market, the state would ask the State Investment Council to buy the bonds with money from New Mexico’s permanent funds. Proceeds from the sale would then be used to help plug all or part of the hole in the state operating budget for the year that starts July 1. Varying estimates put the gap between revenues and expenses at between $200 million and $450 million.
The state constitution requires state government to balance its budget each year. It also restricts the state from tapping the permanent funds and requires voter-approved initiatives to approve changes to how the permanent fund moneys are used. But permanent fund dollars are invested in a variety of bonds and stocks already, and this transaction merely creates a new type of investment.
To repay the permanent fund dollars, along with interest, Sanchez’s legislation would have New Mexico pledge future proceeds from the state gross receipts tax over a five-year period, the lawmaker said.
The idea has garnered attention among both Democratic and Republican lawmakers, Sanchez said.
Supporters view it as a way to keep New Mexico from cutting too deeply into necessary programs and services while avoiding tax increases.
But the idea won’t be an easy sell, and Sanchez knows it.
A spokesman for Gov. Susana Martinez said this week she’s not too keen on the idea. “Governor Martinez does not support borrowing against our kids’ education fund as a means of balancing the state budget,” said Scott Darnell.
Martinez has talked about cutting waste and overspending in government but hasn’t offered specifics on how she wants to solve the state’s budget problem while keeping her campaign pledge against raising taxes or cutting various programs. Her plan isn’t due out until Monday.
Sanchez also faces a hard time selling his concept to some of his Democratic colleagues, including his own Senate Finance Committee chairman.
“I’ve told him `lots of luck,’ “ Sen. John Arthur Smith, D-Deming, said of Sanchez’s bill, which has been designated Senate Bill 1. “I don’t know if No. 1 is the number of the bill or if it means it’s going to be the first bill to die.”
That Sanchez’s idea has whipped up debate in the days leading up to the 2011 legislative session offers a sense of how serious the state’s budget crisis is.
Starting Jan. 18, state lawmakers will spend the next 60 days trying to cover the projected shortfall. Many of the easy cost-saving measures and revenue increases were made in previous years, leaving state lawmakers to make a host of difficult decisions at a time of dwindling federal help.
House Minority Leader Tom Taylor, R-Farmington, for one, said he understands the seriousness of the state’s financial situation, but the pain that is sure to come isn’t enough to persuade him that Sanchez’s idea is a good one. Taylor calls it a short-term fix with potentially serious consequences.
“We have a lot of folks who don’t have a very long view,” Taylor said, adding that if the state does it once, it would prove too tempting in future years to return to the same pot of money. “It will not be temporary because once we do, it’ll be nice to do it again.”
State lawmakers have been hesitant to mess with the permanent funds, which generate investment income. But it has been done before. In 2003, state voters approved increasing the yearly distributions from the permanent funds to bolster education spending.
Some critics worry that Sanchez is placing too much faith in an economic rebound. If the economy doesn’t pick up significantly, there might not be enough gross-receipt revenue to repay the interest on the short-term bonds. That, in turn, would force the state to scramble to find another way to pay off the bonds, potentially squeezing New Mexico even more financially at a time when every dollar counts.
Another concern is that the State Investment Council might lose out on a better investment — and the chance to earn more dollars — if it buys the bonds created for this deal.
But Sen. Gerald Ortiz y Pino, D-Albuquerque, sees Sanchez’s idea as a more attractive scenario than the alternative: further damage to the state economy if cuts to government programs and services are too deep, especially if the cuts include layoffs of some state workers.
Leveraging the permanent funds to pull New Mexico out of its current situation is a no-brainer, he said.
State budget cuts could slow the state’s collection of gross receipts taxes as a portion of the population reduces its spending. Layoffs likewise would lead to a possible reduction in state income tax collections as people who are out of work stop paying as much in income taxes, he said.
“Yes, it’s risky to say we’ll pay back from the gross receipts tax,” Ortiz y Pino said. “We could be in a bad situation if gross receipts taxes don’t meet expectations, but no worse (than) if you lay off people.”
A sign of how much conversation Sanchez’s idea has stoked can be found in the fact that Taylor and Ortiz y Pino are scheduled to debate the idea this afternoon as part of a daylong conference at Santa Fe Community College. The conference, called “Legislative Outlook: Understanding the Budget,” is meant to give the public a glimpse into the state budgeting process, and both lawmakers are among scheduled speakers.
Taylor and Ortiz y Pino each said this week that he would do his best to persuade those attending to adopt his point of view on Sanchez’s idea.
Contact Trip Jennings at 986-3050 or firstname.lastname@example.org