D e s e r t E x p o s u r e
December 2009
Bill's Black Hole
A few modest proposals for closing the budget gap,
post-gravy train.
Is this going to be Gov. Bill Richardson's legacy? Earlier in the governor's second term, when New Mexico's coffers were overflowing with oil and gas revenue and he was contemplating taking his act to the White House, Richardson no doubt envisioned being remembered in the Land of Enchantment for cutting taxes, cracking down on drunk drivers and expanding government services. Something like a hybrid of Ronald Reagan and FDR, with maybe just a touch of Huey Long.
Now, in the wake of an ugly special legislative session to slash state spending and with an even uglier regular session looming, Richardson's legacy looks more and more like a budgetary black hole. Even members of his own party, like Senate Finance Chairman John Arthur Smith from Deming, are criticizing the governor's approach to the budgetary crisis and warning that the worst is yet to come. It took borrowing from Peter to pay Paul and various one-time fixes to close — mostly — the $650 million budget gap in the current year's budget. Without those "gimmicks" (as Senate Republican Whip William Payne of Albuquerque called the budget-balancing measures) and the federal stimulus money used to paper over the shortfall, the 2010 legislative session could be looking at a $1 billion hole. And Smith says ominously, "A billion dollars could be a low number."
What the heck happened? Obviously, the worst recession since 1929 happened, for starters, hammering New Mexico's tax collections just as it did those of other states. But New Mexico is especially pinched by a decline in oil and gas revenue, which accounted for roughly one-sixth of all state revenues in FY09. For the quarter that ended in September, for example, the State Land Office reported a 54% drop in revenue from lease rentals, royalties and interest from oil and gas operations. Total Land Office revenue fell to $90 million in that first quarter of the 2010 fiscal year, down from $194 million in the same period last year.
That's the way it goes in the boom and bust world of energy production. As recently as the summer of 2008, remember, New Mexico was so flush with oil and gas cash that Richardson was proposing to use the windfall to fund universal health care. At that point in the palmy days of $4 a gallon gasoline, state analysts projected that the state would have $392 million in new money for the upcoming budget year and another $1 billion for one-time spending projects.
But, besides the revenue crunch, it's also true — as columnist Henry Lightcap pointed out in these pages last month — that state spending has ballooned on Richardson's watch. It's not just his special proposals for spending oil and gas windfalls; overall state appropriations have increased across the board. When Richardson arrived in Santa Fe in 2003, recurring appropriations totaled $4.1 billion. By the 2008-09 budget cycle, that figure had shot up to about $6 billion. That's a 46% increase in just six fiscal years. Drunken sailors on shore leave with newly cashed paychecks are more careful with their money.
Much of that additional spending, admittedly, has gone towards worthy purposes — from helping veterans and Native Americans to funding education and health care. But now that the gravy train has ended, it's time to look back down the track at where we started.
Rather than battling over where to slash, perhaps the governor and the legislature should go turn the budgetary clock back and rethink where we really need to add. Let's put the Land of Enchantment in a time machine and roll every line of the state budget back to FY03, before the great Richardson spending spree began. Somehow the state of New Mexico limped along on a measly $4.1 billion a year, without closing state parks or schools or tossing disabled veterans out into the street.
But, you say, prices have risen since 2003-04! Fair enough. Give every state agency and other outlay an increase equal to the rate of inflation between then and now. That brings the budget to about $4.9 billion — within striking distance of being balanced, depending on the revenue picture in 2010-11. (Exact budget numbers, by the way, are amazingly difficult to nail down: The $650 million shortfall faced by the recent special session was described as against a $5.5 billion FY10 budget. Executive recommendations for FY10 called for $5.88 billion in recurring appropriations. It all depends on what you count — a million here, a million there, and pretty soon you're talking about real money.)
Without at least a small revenue recovery — and unless you want to simply eliminate every state agency that didn't exist in 2003 — we'd still need to raise taxes. Increasing income taxes in a still-lingering recession — especially a recession that's been so hard on employment — seems like economic folly; besides, as of FY09, income taxes represented only about 27% of total general fund revenues. And regular readers already know our opinion of the regressive gross-receipts tax; an increase would make this tax even more of a drag on the economy and burden on those least able to pay.
An exception that the legislature should consider is restoring the gross receipts tax on sugared soft drinks, which was lifted along with other sales taxes on food (except for sodas sold through vending machines). New Mexico Voices for Children, which has suggested such a move, points out that this "would bring in millions of dollars and help the state offset the high medical cost of obesity and diabetes." Nutrition experts agree, and take the argument a step further, calling for an excise tax on soft drinks sweetened with sugar or high-fructose corn syrup. According to the Center for Science in the Public Interest, a five-cent tax on every 12-ounce sugared soft drink would raise $47 million in New Mexico — which has one of the nation's higher obesity rates, at 25.2%.
Another way to improve New Mexican's physical and fiscal health would be to resurrect the proposal from the 2009 session to add $1 a pack to the tobacco tax. That would bring in about $30 million while discouraging the single greatest contributor to health-care costs. At 91 cents a pack, New Mexico's tobacco taxes rank 29th in the nation; even at $1.91, our rate would still be nine cents lower than neighboring Arizona. A poll earlier this year found that 76% of New Mexicans supported an extra $1 a pack, and even 57% of smokers approved. With nationwide smoking rates increasing in 2009 for the first time in 15 years, the time is right.