Commentary: There is good news coming from Santa Fe. The oil boom in Eddy and Lea county have generated a whopping $1.2 billion in “new money”. “New money” being the term used by State budgeteers for revenue not yet allocated. It is the revenue available to fund new or expand existing programs; for pork and perhaps for a tax cut. It is the revenue that politicians can use to get re-elected.
How to use the new money is the question on everyone’s minds as the state cranks up for next January’s legislative confab. Without doubt, the upcoming session will be more fun for legislators than it has been in many years. It is always more fun to spend than it is to cut. And as this year will be a long session, which means that issues other than budget can be taken up, expect many proposals for new programs.
The consensus seems to be forming around education as the primary recipient of new funding. Increased education spending is supported by both Gubernatorial candidates, for example. Then there is that pesky court ruling by District Court Judge Sarah Singleton finding the state’s educational financing in violation of education clause of the state constitution.
That judge has a point. New Mexico, unlike most states, funds education primarily at the state level using general funds, while most states rely more on local funding arising from local property taxes. Many point to this a good as it means that rich and poor school districts receive similar budgets despite differing resources. Nevertheless, New Mexico is last or near last in education in many rankings. We just are not preparing our children for a 21st Century world.
There are other programs besides education in much need of funding. These include Medicaid, infrastructure spending on such things as broadband, roads and sewers, and tax cuts.
Many argue that tax cuts are not justified as Richardson tax cuts, enacted during the last oil boom, were not rescinded during the recession, forcing even more cuts in government program. Permanent tax cuts are not justified. Indeed, Martinez passed additional tax cuts even as funding for education was cut.
Which brings us to another point—the volatility of energy markets. What Energy giveth, energy can taketh away. We should prepare for that. Economists have long argued that a city, a state, a nation should run surpluses in good times and deficits in bad times, thereby helping to smooth out the economic ups and downs. Too often, the actual practice has been to spend when as soon as the revenue hits the door, then cut when economic conditions cause revenues to fall off.
If we spend money on roads now, for example, then the state will be trying to hire just as there is a shortage of workers in the booming oil. Better to increase spending less now, building up the state reserves, then fund road construction when workers are being laid off from the oil patch.
Revenues for the rest of this year and even more so next year are expected to be considerable above that trend. It makes sense to save that revenue, or at least a considerable portion of it, for next time we fall below trend.
It may be some time before there is a downturn in the oil patch, however. The Dallas Fed’s Robert Kaplan argues that, after a period of glut, oil markets are more or less in equilibrium right now. But as the global economy continues to grow, demand will increase, pushing up oil revenues. If Kaplan’s scenario turns out to be right, then it may be some time before we face another substantial budget downturn.
Christopher A. Erickson, Ph.D., is a professor of economics at NMSU. He has studied the New Mexico economy since 1987. The opinions expressed may not be shared by the regents and administration of NMSU. Chris can be reached at chrerick@nmsu.edu.