The Associated Press April 5, 2010, 10:02AM ET

Analysis: NM could face more budget trouble

There are troublesome clouds looming on New Mexico's financial horizon and if the problems continue to grow it could mean another round of budget cuts.

Revenue collections for the current budget year are running $76 million below what had been anticipated, according to the Legislative Finance Committee.

That spells potential trouble for public schools, colleges, courts and state agencies, although it could be July or August before it's clear whether weak revenues force more budget reductions.

If revenues fall short for the fiscal year ending in June, then New Mexico's cash reserves must make up the difference to balance the budget.

Those reserves are the state's financial safety net.

Gov. Bill Richardson and legislators are relying on that money to avoid more spending cuts in the upcoming 2011 fiscal year.

That's particularly true after Richardson vetoed a proposed tax on food last month, which would have raised $68 million to help balance next year's budget. The Democratic governor signed other tax increases that will generate more than $170 million next year.

"I believe we can eliminate the food tax and still balance the budget," Richardson said in explaining his decision.

Cash reserves, according to the governor, can offset the money that would have come from the food tax. Richardson also pledged to use $20 million of federal economic stimulus money to help shore up the state's finances if necessary.

The reserves are estimated to be at $272 million at the end of June, if revenues are on target this year, according to the Department of Finance and Administration.

The Legislature has given the governor the power to transfer $132 million from reserve accounts in the current and next fiscal years to deal with any revenue shortfalls.

If revenue collections and the $132 million in reserve transfers aren't enough to cover spending, then Richardson -- or New Mexico's next governor -- must start cutting budgets for programs and services, including education. Lawmakers gave the governor that power in a budget bill signed into law by Richardson.

Legislators and administration officials will watch closely what happens to this year's revenues in the coming months. Another critical development will come when state economists update projected revenues for next year. That revenue forecast is likely to happen in July.

The budget signed into law by Richardson provides for spending $5.6 billion on education and other government programs next year. The newly signed tax increases and more than $200 million in federal economic stimulus money will help pay for the proposed spending.

However, the food tax veto could end up aggravating the budget troubles that will confront the next governor, who will take office in January. Richardson can't seek re-election because of term limits.

Senate Majority Leader Michael Sanchez, D-Belen, said the veto "puts the state's financial future at even greater peril."

When the Legislature convenes next January, it must decide how to replace more than $200 million in federal stimulus money in the 2012 budget year. That will be no easy task if state revenue growth is weak.

Richardson's "approach to balancing the budget relies heavily on general fund reserves and federal stimulus money," Sanchez said when the governor vetoed the food tax.

"While this may work in the short-term and carry him through the end of his term, these are one-time revenue sources. Unless the economy drastically improves, the next governor will have to take action to raise recurring revenue for our state's budget or make cuts that will impair services to New Mexicans."


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