Claims, risks shadow ‘new’ state revenue

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A fair amount of “new” money — $282 million — will flow to state government’s general fund during the budget year, starting July 1, 2013.

From state government economic wizards, “caution” is the word for considering uses of that money. “New money” means the difference between revenue expected during the coming budget year and current year spending.

State revenue looks like around $5.7 billion for this budget year (FY 13) and $5.9 billion in FY 14, Legislative Finance Committee Director David Abbey, told the recent New Mexico Tax Research Institute conference in Albuquerque.

Much of the good revenue news comes from oil and gas, said Tom Clifford, Department of Finance and Administration secretary. New technology has meant sharp increases in oil production the past few years, Abbey said.

Caution about using the new money starts with a quarter of it — $72 million — being already claimed to replenish money used to balance the state budget in past bad years.

The biggest number of the conference day, $15.5 billion – the unfunded liability of the state’s three employee pension funds – remains outside the general fund. Abbey said the “main causes for (the pension’s) deteriorating funding levels are investment losses under aggressive return assumptions, contributions that do not support costly benefit plans, no minimum retirement age, and members living longer.”

For icing on the scary cake, the DFA’s Clifford said the LFC assumptions about returns from the pension funds’ investments “are very optimistic.”

Retirement liabilities were a passing topic. The shorter term, the next year of two, got the focus. A potential nine-figure hit on the general fund looms when the state reconciles its cash records with the accounting records, something not done for years.

Then there is the federal government. According to Paul Caron at the Tax Prof blog (http://taxprof.typepad.com), 42.7 percent of New Mexico’s “budget” or “general revenue” comes from the federal government.

“Cutbacks at the national laboratories are already significantly affecting the New Mexico economy,” Clifford said.

The LFC world view focuses “on education, early childhood investment, public health, public safety, and protecting vulnerable citizens,” Abbey said. The committee seeks to “maintain balance between public schools, higher education and general government.”

Do not expect state government to become smaller. Gov. Susana Martinez allowed agencies to request spending of 6 percent more. The administration’s spending philosophy, Keith Gardner, Martinez’s chief of staff, told the conference, is growing spending at the rate of inflation plus population increases.

“Achievement gap” is the term for the difference between what students know and what they should know.

LFC research finds that “the state’s largest achievement gap is highly influenced by poverty and language status, regardless of ethnicity or race.” Attacks on the problem go to what Abbey called “evidence-based, proven strategies.” He likes the K-3 Plus program that adds 25 school days for some children in kindergarten through third grade. Childcare assistance, home visiting, pre-kindergarten and performance-based budgeting also claim spots on the LFC’s list.

Transportation has two achievement gaps, though Abbey didn’t use the term. The Department of Transportation is $304 million shy of what it claims to need for rebuilding roads and replacing bridges. For “routine pavement preservation,” the gap is $225 million.

Some road building rethinking has occurred, though “not enough,” Abbey said. Earlier choices such as shortening design life for roads were “penny-wise and pound-foolish.” The LFC will have transportation funding recommendations.

The state’s mess of a tax system was the only longer term, big picture issue getting attention from elected officials and business speakers. Much of the commentary amounted to whining about the huge size of the tax system problem and how nothing will happen.