Chief Financial Officer
New Mexico Higher Education Department
Building the FY10 budget in New Mexico followed closely on the heels of cutting the
approved FY09 budget. As had occurred nationally, the revenue outlook in New Mexico swung
dramatically between July and December 2008. In July 2008, the consensus revenue projection for
FY10 anticipated 6.5 percent growth in general fund revenues or $392.1 million in “new money”
that could be used to fund new programs, inflation, pay increases, etc. In August 2008, the
governor called a special legislative session, where the legislature passed $56 million in tax rebates
from a windfall in revenues. (Nash, 2008)
Six months later, the consensus revenue projection had flipped to anticipate 9.5% decrease
($575 million) in available funds when compared to the FY09 appropriation. (See Figure 1.) The
revenue projections for FY09 had also soured during the year, such that the first task of building
the FY10 budget was to cut the FY09 budget at midyear. As the legislature began the 2009
session, it faced a $454 million shortfall in FY09 from the budgeted level.
"New Money" Available for Appropriation
FY05 FY06 FY07 FY08 FY09
(July 08) (Feb 09)
New Money $168.5 $299.0 $528.0 $720.9 $369.0 $392.1 $(575.0)
The ongoing slide of revenue projections has resulted in agencies being required to run one
budget cutting scenario after another, followed by midyear revisions of the FY09 and FY10
appropriations. It seems we have entered a cycle of continuous decremental budgeting due to the
uncertainties in the external economy. As this is written, the legislature has just completed a
special session where they reduced the FY10 general fund budget by hundreds of millions of
dollars; however, there has been widespread reaction for affected programs such that the governor
may veto the reductions and ask the legislature to try again during its regular session beginning in
January 2010. The FY10 general fund revenue estimate has fallen by almost $1 billion (16%)
since December 2008.
ECONOMIC AND REVENUE FORECAST (Legislative Finance Committee, 2009a)
New Mexico revenue projections reflect national economic growth projections by Global
Insight and specific conditions with regard to in-state employers and economic activity. During
the time that the FY10 budget was developed, Global Insight lowered its gross domestic product
forecast for FY10 from 0.1 percent growth to negative 1.6 percent. The national economy was
projected to contract 3.5 percent during calendar year 2009 with unemployment climbing to 10
By December 2008, the national “housing price bubble” had collapsed and the federal
government had already undertaken the bailout of major financial institutions. Plummeting oil and
natural gas prices had immediate consequences for the revenue forecast. In August 2008, the
average FY09 cost of oil was projected at $122.00 per barrel; for FY10 the projection was $116.00
per barrel. Four months later, the projection dropped to $69.00 and $59.00 per barrel respectively.
Natural gas price projections fell by about one-third during the same period. As a result, revenues
from royalties and mineral taxes were projected to fall $344 million from FY08 to FY10 – the
major cause for anticipated falling revenues when the December 2008 forecast was prepared.
Broader based taxes were also projected to grow at below-anticipated rates due to falling
employment, especially in the construction and tourism industries. (Miller and Homans, 2008)
Since January 2009, the revenue shortfall in New Mexico shifted from a focus on falling oil
and gas tax revenues to loss of revenues from broad-based taxes (income and gross receipts).
From December 2008 to October 2009, revenue projections for gross receipts taxes have fallen 8.7
percent. Over the same time, income tax projections have fallen $455 million or 29 percent. (See
Attachment A.) The New Mexico economy has not declined as rapidly as the national economy
due to the larger proportion of the economy in the public sector. At the time this article was
written (November 2009), the New Mexico unemployment rate was about eight percent compared
to a national rate of about 10 percent.
Of course, many aspects of state demography are considered with regard to development of
public programs. For example, the state’s unique ethnic composition contributes to a wide range
of facilities and programs to celebrate cultural heritage such as the National Hispanic Cultural
Center, Indian Arts and Culture Museum and Farm and Ranch Heritage Museum. Many programs
are adapted to reach out to each culture in appropriate ways and to provide multilingual services.
In terms of consumption of public services, New Mexico is affected by its high rate of
poverty (16.7 percent versus the national rate of 12.7 percent), which increases the cost of
Medicaid and other means-tested public programs. The relatively large portion of the population
under 18 years old contributes to increased costs for K-12 education and other programs targeted
for or affected by youth.
Demographic Characteristics of New Mexico
New Mexico USA
Population % change 2000 to 2006 7.50% 6.40%
% under 18 years old, 2006 26.0% 24.6%
% 65 years old and over, 2006 12.4% 12.4%
% Hispanic, 2006 44.0% 14.8%
% White non-hispanic, 2006 42.8% 66.4%
% African American, 2006 2.5% 12.8%
% Native American, 2006 9.8% 1.0%
% Asian/Pacific Islander 2006 1.4% 4.6%
Foreign born persons, percent, 2000 8.2% 11.1%
Language other than English, 2000 36.5% 17.9%
Median household income, 2004 $37,838 $44,334
% below poverty, 2004 16.70% 12.70%
S ource: USA QuickFacts, U.S. Bureau of Census .
The New Mexico legislature’s five-year budget forecast considers change in the state
population among other factors affecting future state expenditures. The forecast prepared in late
2008 anticipated 1.2 percent growth in annual population through FY13. Of course, the forecast
for public education spending follows projected growth in school-age population (Legislative
Finance Committee, 2009b).
New Mexico Population
2000 2005 2010 2015 2020 2025
POLITICAL COMPOSITION AND RELATIONS
In New Mexico, the governor and leadership of both legislative houses are Democrats. The
New Mexico state senate is comprised of 27 Democrats and 15 Republicans; the House has 45
Democrats and 25 Republicans. In recent years, the House has worked with the governor more
closely than the Senate.
Despite the one-party control of statewide executive offices (except the State Land
Commissioner) and both houses of the legislature, there has not been unity on policy or budget
priorities. In recent years, the governor has had relatively harmonious relations with the House,
where the Speaker has been supportive of his agenda. The Senate, on the other hand, has been
more independent, providing a moderate to conservative counterbalance to Richardson. The
chairman of the Senate Finance Committee, Senator John Arthur Smith, is a self-proclaimed fiscal
conservative who has been given the moniker “Dr. No” due to his preference for restrained
spending and his uncanny accuracy in predicting further revenue declines. During the fall 2008,
there was a contest for the leadership of the Senate, with liberal Democrats seeking to oust the
moderate Democrat President Pro Tem Tim Jennings, in part to replace Smith with a more liberal
chair. In January 2009, eight Democrats and 15 Republicans joined to reelect Jennings as
President Pro Tem, resulting in retention of Smith as Senate Finance Committee chair.
New Mexico is unusual – perhaps unique – in that both the legislative and executive
branches prepare budget recommendations to be presented to the legislature. The legislative
budget proposal is prepared by the staff of a joint bipartisan interim committee, the Legislative
Finance Committee (LFC), who also drafts the budget bill and staffs the budget process in both
houses throughout the legislative session, with help from session staff of the two appropriations
committees. The executive budget recommendation is prepared by the Budget Division of the
Department of Finance and Administration.
The budget process begins in June when the Budget Division issues instructions to state
agencies for preparation of the next year’s budget request. During the summer, the agencies
prepare their budget requests. Between September and December, budget analysts in the Budget
Division and LFC prepare recommendations for their respective branches that are published in
volumes in January on the first day of the legislative session.
The General Appropriation Act is sponsored by the Chair of the House Appropriations and
Finance Committee (HAFC) and is heard initially in that committee. Typically, the introduced
version of the bill reflects the governor’s budget recommendation. Analysts from both the Budget
Division and LFC present their recommendations, alongside presentations of budget requests by
agency executives. The committee endorses one of the two recommendations but may vote for
modifications. (Budget requests for smaller agencies are heard first by a subcommittee.) After the
HAFC acts on the bill, it is sent to the House floor. From the House, the bill goes to the Senate
Finance Committee which has already been conducting hearings on the two sets of budget
recommendations prior to receiving the bill. The Senate Finance Committee amends the bill, at a
minimum to add projects sponsored by individual senators. The bill then moves to the full Senate,
then to conference committee, then to the governor’s desk. The governor may veto the entire bill,
item veto portions of the bill or sign the entire bill per Article IV, Section 22 of the New Mexico
Constitution (LFC staff, 2006).
Four additional appropriation bills are common. The first is House Bill 1, which
appropriates funds for most of the operations of the legislature. The second is a “junior”
appropriation bill which is used as a vehicle for legislators to fund their specific program priorities
through earmarks. In 2009, however, due to lack of funds, there was no junior bill. The other two
bills are capital outlay bills – one funded with general fund and severance tax fund revenues, the
other funded by General Obligation Bonds requiring approval of the voters.
EXECUTIVE BUDGET RECOMMENDATION (Department of Finance and
The governor entitled his FY10 budget recommendation as “The Year of Fiscal Restraint”
in the table of contents of the document. His recommendation was a four-step multi-year budget
plan. It was a multi-year plan because it needed to balance two budgets by addressing the FY09
shortfall, which at that time was projected at $454 million, and planning for a $293 million
revenue decline in FY10. The four steps of the plan included increasing revenues, lowering
expenditures, utilizing idle funds and reverting unused funds.
Increasing Revenues. Revenue enhancements were projected to generate $105.6 million
in new revenue in FY09 and $34 million in new revenue in FY10. The primary revenue
enhancement was not a tax increase so much as a reform to when corporate income taxes are paid.
A 2003 law inadvertently eliminated the first quarter estimated corporate income tax payment.
The first quarter payment would be reinstated under the governor’s recommendation to generate a
nonrecurring $65 million revenue increase in FY09. Other revenue increases included: Improving
motor vehicle excise tax collection ($6 million in FY09/$12 million in FY10), improving tax
audits ($21 million in FY10), selling assets unclaimed from safe deposit boxes ($8 million in
FY09), canceling returned rebate checks ($1 million in FY10), and sweeping fund balances ($26.6
million in FY09). The fund balances that would be reduced are shown below.
Commission for the Deaf and Hard-of-Hearing Persons Assessment collection fund $ 5,000.0
Workers’ Compensation Administration Workers' Comp Admin Fees $ 5,000.0
Public Education Department Infrastructure funds $ 5,000.0
Higher Education Department Performance fund $ 2,827.6
Higher Education Department College affordability fund $ 2,000.0
Secretary of State Public election fund $ 1,750.0
Department of Finance and Administration Electronic voting machines fund $ 1,500.0
Administrative Office of the Courts Water rights adjudications $ 1,000.0
Department of Transportation Rubberized asphalt fund $ 1,000.0
Youth Conservation Corps 500.0 Youth Conservation Corps fund $ 500.0
Public Regulation Commission Insurance fraud fund $ 400.0
Department of Public Safety State fines and forfeitures $ 400.0
Human Services Department Technology Appropriation Balance $ 136.0
Energy, Minerals and Natural Resources Department Motor boat fuels tax $ 100.0
TOTAL $ 26,613.6
Lowering Expenditures. Statewide operating budgets would be cut in FY09 and FY10 as shown
$ Change ($ $ Change
millions) % Change ($ millions) % Change
Executive Agencies $ (49.3) -2.1% $ (117.2) -5.1%
Legislature $ (1.0) -5.0% $ (1.0) -5.0%
Judiciary $ (5.4) -2.5% $ (5.4) -2.5%
Elected Officials $ (2.3) -5.0% $ (2.3) -5.0%
Higher Education Institutions $ (20.9) -2.5% $ (39.4) -4.7%
Public Education $ (22.9) -0.9% $ (125.0) -4.8%
Other $ (12.4)
TOTAL $ (101.9) -1.7% $ (302.7) -5.0%
The major changes affecting public education included increasing class sizes in
kindergarten and first grade to 22 students and would allow an average of 165 students for mid-
school and high school teachers. An extra day of teaching would be eliminated. Instructional
material and technology purchases would be delayed. Higher education reductions were targeted
primarily to earmarks (research and public service projects) and to reduced allotments for building
and equipment renewal and replacement.
Utilizing Idle Funds. This proposal eliminated $32.5 million in FY09 appropriations made in a
2008 special session to expand developmental disability waivers, children health insurance
eligibility, and mental health programs. As the revenues that were used to fund these expansions
were no longer available and the expansions could not be sustained in FY10, the governor
recommended that they be eliminated.
Reversions/Deauthorization of Capital Projects. Funding for stalled state, local and
public school capital outlay projects would be deauthorized including $100 - $110 million for local
government projects, $90 - $100 million for statewide projects, and $58 million for public
education projects. All savings would be realized in the state general fund in FY09.
The governor’s spending reduction plan created space to increase spending in some
targeted areas including $23.6 million in deficiency (overspending from FY08) and supplemental
FY09 appropriations, $37 million for special appropriations which begin in FY09 and run into
FY10, $14.7 million for information technology, and $162.1 million for recurring FY10 spending
LEGISLATIVE BUDGET RECOMMENDATION (Legislative Finance Committee, 2009b)
The LFC general fund recommendation for FY09 totaled $5.88 billion, a 2.4 percent
decrease from the FY09 level. Even this decrease would require appropriation of $94 million from
reserves. The LFC recommendation started with a FY09 solvency plan including :
One-time transfers and revenue enhancements with a target of improving revenues by
Expenditure cuts targeted at reducing spending by $137.5 million,
Capital outlay reauthorization with a target of freeing up $150 million.
The LFC budget recommendation for FY10 included $145.6 million in reductions as well
as a $94 million transfer from reserves.
LFC's Recommended R ecurring
General Fund Appropriations for Dollars in Pct
FY10 Millions Change
Primary and Secondary Education $2,513.1 -1.5%
Higher Education $864.7 -2.3%
Public Safety $394.9 -4.1%
Health and Human Services $1,470.3 -3.7%
Other $637.9 -0.5%
TOTAL $5,880.9 -2.4%
The LFC relied heavily on reductions in contracts and savings from holding positions
vacant to achieve these reductions.
FINAL BUDGET (LFC 2009a)
FY09 Solvency Legislation. The state faced a $454 million shortfall in FY09 that needed to be
addressed before the FY10 budget could be approved. The 2009 legislative session began with
passage of four bills (HB9, HB10, SB79, SB80) to ensure financial solvency in FY09. The
legislature took a four-pronged approach:
Revenue enhancements were approved that would generate $148 million including
reinstating the quarterly estimated payment of corporate income taxes and
transferring surplus fund balances to the general fund;
Budget reductions were approved that reduced spending $192 million, including
reducing FY09 Medicaid and public school appropriations by 1 percent and other
agencies up to 5 percent;
About 125 capital outlay appropriations were voided totaling $152 million, including
$58 million from public school capital outlay; and
General fund reserves were tapped for $56 million.
The total adjustment exceeded the amount of the shortfall predicted in December 2008,
because revenue projections during the legislative session indicated that further reductions were
needed. These FY09 reductions left an estimated 10.3 percent fund balance at the end of FY09.
FY10 Appropriation. The final version of the General Appropriations Act of 2009 included
about $5.5 billion in total general fund appropriations, which was $539 million, or 9 percent,
below the FY09 budget level prior to the 2009 solvency legislation. Recurring FY10
appropriations were $375 million, or 6.4 percent, below the FY09 solvency adjusted level. No
layoffs or furloughs were needed to implement this budget. Reductions were spread across all
state agencies, taking cuts averaging 9 percent. Some of the largest reductions were possible
because general fund cuts were replaced by federal fiscal relief funds or other state funds. For
example, recurring appropriations for the state public education equalization was reduced $188
million, but the GAA appropriated federal funds from the stimulus bill of $164.7 million to the
public school funding formula.
The plan assumed a high level of frozen vacant positions as well as effective salary
reductions for state employees to bring in the budget cuts. While no formal salary reductions were
included, HB 854 shifted 1.5 percent of the cost of employee retirement from the state to state
employees (HB854) or an effective 1.5 percent pay cut.
The adopted FY10 budget included a 10.4 percent ($570 million) operating reserve.
Governor Richardson item vetoed $430,000 in recurring general fund appropriations and
$510,000 in nonrecurring general fund appropriations.
Adopted Recurring General Fund General Fund Percent Percent
Appropriations for FY09 (GAA) $Millions Total GF Total $Millions Total
Primary and Secondary Education $2,373.8 43.3% $2,953.5 19.7%
Higher Education $853.2 15.5% $2,759.4 18.4%
Public Safety $379.8 6.9% $509.9 3.4%
Health and Human Services $1,202.5 21.9% $5,709.5 38.2%
Other $678.4 12.4% $3,025.5 20.2%
TOTAL $5,487.7 100% $14,957.8 100%
Appropriation Reduction and Budget Adjustment (FY09 budget reduction bill), House
Bill 10 (Chapter 2 of Laws 2009)
Department of Finance and Administration (2009). Budget in Brief, Fiscal Year 2010.
Santa Fe: Department of Finance and Administration
Feed Bill, House Bill 1 (Chapter 1 of Laws 2009)
Fund Transfers and Appropriation Cuts (FY09 budget reduction bill), Senate Bill 79
General Appropriations Act of 2009, House Bill 2 (Chapter 124 of Laws 2009)
Legislative Finance Committee staff – LFC staff (2006). “The Fiscal Structure.” In F.
Chris Garcia, Paul L. Hain, Gilbert K. St. Clair, and Kim Seckler, eds., Governing New
Mexico. Albuquerque: University of New Mexico Press, 255 – 276.
Legislative Finance Committee (2008). 2008 Post-Session Review. Santa Fe:
Legislative Finance Committee
Legislative Finance Committee (2009a). 2009 Post-Session Review. Santa Fe:
Legislative Finance Committee
Legislative Finance Committee (2009b). Report of the Legislative Finance Committee to
the Forty-Ninth Legislature, First Session 2009 for Fiscal Year 2010, Volume I. Santa
Fe: Legislative Finance Committee.
Legislative Finance Committee (2009c). Report of the Legislative Finance Committee to
the Forty-Ninth Legislature, First Session 2009 for Fiscal Year 2010, Volume 2. Santa
Fe: Legislative Finance Committee.
Miller, Katherine and Rick Homans (2008). General Fund Consensus Revenue
Nash, Kate (2008), “Special Session Ends on Modest Note,” Santa Fe New Mexican.
August 19, 2008.
About the Author: David Soherr-Hadwiger is the Chief Financial Officer of the New Mexico
Higher Education Department. (firstname.lastname@example.org)
GENERAL FUND CONSENSUS REVENUE ESTIMATES
Actual FY2007 Change FY2008 Change FY2009 Change
Revenue ($millions) FY06 Est. From FY06 Est From FY07 Est From FY08
General Sales/Gross Receipts Taxes $1,741.7 $1,892.9 8.7% $1,974.0 4.3% $2,039.8 3.3%
Selective Sales Taxes (tobacco, liquor, etc.) $405.4 $405.3 0.0% $407.8 0.6% $419.5 2.9%
Income Taxes $1,504.3 $1,624.4 8.0% $1,587.8 -2.3% $1,624.4 2.3%
Severance Taxes $541.8 $500.5 -7.6% $496.2 -0.9% $485.4 -2.2%
License Fees $49.0 $49.4 0.8% $49.7 0.6% $52.0 4.6%
Interest $590.2 $604.0 2.3% $646.8 7.1% $695.4 7.5%
Rent & Royalties $609.2 $551.4 -9.5% $601.0 9.0% $581.9 -3.2%
Tribal Gaming Revenue Sharing $49.5 $54.1 9.3% $64.5 19.2% $69.2 7.3%
Other/Misc. $88.5 $72.5 -18.1% $74.5 2.8% $76.5 2.7%
TOTAL RECURRING $5,579.6 $5,754.5 3.1% $5,902.3 2.6% $6,044.1 2.4%
Source: LFC Revenue Brief, December 3, 2007, p. 18