Roundhouse budget squeeze taking shape

SANTA FE — Memo to New Mexico: Pay attention when state lawmakers convene in January. The fast-approaching 2009 legislative session is gonna be hard not to watch in a voyeuristic, it’s-a-bad-accident-and-I-feel-bad-for-staring-but-I-can’t-help-myself way.

The go-go years of high oil and gas prices that flooded the state coffers have ended, leaving a budget gap that some predict could eclipse $500 million in the place of what was supposed to be a decent-sized surplus.

The money shortage is the equivalent of a forced diet for lawmakers who have gotten used to divvying up huge surpluses with Gov. Bill Richardson. Now the fights will be over where to cut, how deep to cut, whether to raise taxes — in effect, how to make do with less.

And the battles won’t be pretty.

To get a sense of some of the battle lines already being drawn, you had only to be a wall-leaner at the state Capitol in Santa Fe on Wednesday, where two competing legislative hearings exposed some of the rifts likely to surface when the 60-day session convenes in January.

One hearing was held by the Legislative Finance Committee (LFC), the other by the Legislative Education Study Committee (LESC).

At the LFC hearing, state lawmakers focused on dollars and cents, quizzing state budget officials about a recently instituted hiring freeze, about spending, about ways to jump-start lagging revenue.

They also sparred with the governor’s budget officials over which brick-and-mortar projects — better known as pork projects — to stop funding: the governor’s projects or lawmakers’?

“Everything is on the table,” Richardson’s budget chief, Katherine Miller, told lawmakers.

At one point, Rep. Kiki Saavedra, D-Albuquerque, chairman of the House Finance and Administrations Committee, got off a wisecrack dripping in the gallows humor that is quickly becoming more common with all the bad financial news.

The public address system in the room kept malfunctioning. Finally, after the seventh or so eardrum-bursting squeal, Saavedra quipped, “That means that there is no money.”

The room burst into laughter in a rare moment of levity.

A few doors away, smiles were easier to spot at the LESC hearing. State lawmakers were discussing a proposal to raise the state’s gross-receipts tax by 1 percent to beef up public school funding. Advocates say it would generate $500 million for the state’s 89 public school districts, many of which are struggling. More importantly, supporters say, the cash infusion would move New Mexico toward a more equitable way of divvying up state education money to districts.

The proposal would tack on $1 to every $100 for most goods and services that are purchased. But supporters said the bad economic times shouldn’t scare away support. The money could keep school districts from taking draconian measures, like layoffs, they said.

“It’s a perfect time” for the tax increase, said Sen. Cynthia Nava, D-Las Cruces, who also is superintendent of the Gadsden School District, which is staring at a $3.9 million deficit this year.

But there are indications the tax increase might be in for a chilly reception if the LFC chairman’s response is any barometer.

“Do you make the people who are losing their jobs pay more?” Sen. John Arthur Smith, D-Deming, said of the tax proposal.

Responding to the caution from the finance committee, Rep. Mimi Stewart, D-Albuquerque, an LESC member, appeared to sum up the differences between the two committees — and a fault line that lawmakers must navigate once they convene early next year.

“They’re gloom and doom,” she said of the finance committee. “We’re hopeful, optimistic.”

The remark goes to show that the battle lines won’t be only Democrats vs. Republicans. It’ll be lawmakers who watch the bottom line vs. lawmakers who advocate for causes. Or, as one capitol wit put it, the gloom-and-doom types vs. glass-half-full types.

Add to those tensions a testy relationship between Richardson and the state Senate. Mix in a purported leadership battle in the Senate.

Then throw in for good measure the uncertainty about who the governor will be when the session starts Jan. 20. Gov. Bill Richardson is rumored to be packing his bags for Washington as part of President-elect Barack Obama’s administration.

A new state chief executive would change all the dynamics and some of the rules as state lawmakers and lobbyists scramble to get close to Lt. Gov. Diane Denish, Richardson’s replacement should he depart for Washington.

“It’s going to be very interesting,” said Sen. Dianna Duran, R-Tularosa.

Scrambling to deal with looming money crunch

It is difficult to say how bad the state’s financial situation is, staff say.

An updated revenue forecast is due out next month and that will give lawmakers and Richardson new estimates of how much money the state should expect in the current fiscal year and in the 2010 budget year, which starts in July.

Meanwhile, oil and natural gas prices — a major barometer for state revenues — remain volatile after falling in recent months, leading some to predict much lower revenues from broad-based taxes — gross receipts and income taxes.

Last month, Richardson ordered executive branch agencies to trim spending and impose a freeze on hiring. The governor also said he would ask the Legislature to eliminate some previously approved capital improvement projects to save money.

Universities and other institutions of higher learning have already frozen wages and cut back on travel and other expenses. Senate President Pro Tem Tim Jennings, D-Roswell, meanwhile, has told school districts in a letter to prepare for spending cuts and possible layoffs to cope with the state budget gap — a move Richardson criticized as “irresponsible and premature.”

It was in that context that Wednesday’s LFC meeting took place.

The finance committee is effectively the Legislature’s Mr. Moneybags. And it has managed to serve as a persistent thorn in Richardson’s side during his six years as governor.

Wednesday was no exception.

Testimony from the governor’s budget director, Katherine Miller, was marked by occasional testy exchanges with lawmakers.

The source of the tension was a memo Richardson sent out Nov. 17 to all state agencies asking them to list brick-and-mortar projects — alternately called capital outlay or pork — as candidates for having their funding canceled. Each year the state Legislature and the governor agree to spend hundreds of millions of dollars to build or renovate senior centers, gyms, community centers and university labs.

Richardson has publicly announced that he wants to de-authorize $200 million to $300 million from more than a $1 billion in backlogged projects statewide that have stalled for whatever reason — lack of full funding, lack of interest, etc.

But was the governor overstepping his authority with the memo by trying to unilaterally cancel funding? wondered Rep. Donald Bratton, R-Hobbs.

“The governor is not trying to de-authorize projects unilaterally,” said Miller, the budget director.

Bratton responded, “We got a lot of projects that have languished for years because we have tried to piecemeal [them]. Because of the inability to fully fund, we have created a situation where agencies have to come back year after year to [secure enough funding].”

Saavedra, the chairman of the powerful House Administrative and Finance Committee, then articulated the question on many lawmakers’ minds.

“You are telling me that the governor is cutting his own projects?” Saavedra asked Miller. “Most of the legislators are concerned … they are concerned that the focus is on legislators’ capital outlay. Most of the big money is in the governor’s capital outlay, right? Those are the rumors. I’m just being honest now.”

Miller responded, “We will look at every available project.”

That didn’t satisfy the lawmakers on the committee.

The conversation veered to reports that the governor is favoring putting a multimillion-dollar equestrian facility at the Expo New Mexico state fairgrounds in Albuquerque, which has lost its main source of revenue and attendees: a racetrack.

The governor put $25 million of his capital outlay money in a bill a couple of years back to pay for the facility.

Legislative staff quoted from an e-mail saying that the state was thinking of signing a Memorandum of Understanding with Expo New Mexico to put the facility at the fairgrounds.

“It makes a lot of sense to bring that [equestrian facility] project back to [the state fairgrounds],” Miller told lawmakers.

Rep. Edward Sandoval, D-Albuquerque, wanted to know if the facility was even viable at the fairgrounds.

Then Sandoval asked Miller point-blank if the governor were reviewing his projects like the equestrian facility to find monetary savings.

“All capital outlay projects are being looked at,” Miller said.

‘Schools statewide are going broke’

A few doors down at the LESC, lawmakers were hearing from school superintendents, most of whom were enthusiastic about a statewide tax to help fund the state’s 89 school districts.

New Mexico public schools are facing hard economic times. Spending on public schools makes up roughly 43 percent of New Mexico’s $6 billion annual budget. But that hasn’t eased the pain that schools are feeling.

Albuquerque Public Schools announced a $10 million savings plan earlier this month to make up for a budget shortfall.

Albuquerque’s neighbor to the west and north, Rio Rancho, has slashed supply budgets for most of the district’s departments and schools, reduced utility costs, trimmed travel budgets and stipends and seriously curtailed the use of substitute teachers.

The Gadsden public schools district in the Las Cruces area, meanwhile, is asking central office employees to cover for teachers in situations involving long-term absences, such as maternity leave or surgery, Nava said.

Gadsden is looking at a $3.9 million shortfall and will attempt to cover it by using money the state is reimbursing the district for money spent on a high school, Nava said.

“Of course, we’ll still have a $3.9 million shortfall next year,” Nava said.

The shortfall is due to what Nava calls a “perfect storm:” several years of no auditing of the Gadsden school budget, diminished tax revenues and the construction of five new elementary schools and one high school in a four-year period.

Despite her particular district’s challenges, Nava thinks Gadsden is on the front edge of a financial trend that will spread to other districts eventually.

“Schools statewide are going broke — that’s my opinion,” Nava said.

Nava and other supporters of the 1 percent increase to the state gross-receipts tax see it as a way to raise money to divvy up the state’s funding more equitably among the state’s districts. But they also see it as a lifeline to public schools.

“Now is the time for every New Mexican to come to the aid of their schools,” Nava said.

Stewart, the Albuquerque Democrat, predicted there would be layoffs and programmatic cuts across the state if more money weren’t injected into public schools.

But Stewart admitted that the bad economic times would make a state tax increase difficult to stomach for her fellow state lawmakers. “It’s going to be extremely difficult,” she said. “What we are going to propose is a phase-in, over two to three years.”

Not longer?

No, just two to three years, she said.

Sitting in his office after a long day, Smith, the LFC chairman, said the tax increase was a case of bad timing. There are some who wonder if the state’s shortfall might grow in coming months because they are unsure we have reached the bottom of oil and gas prices.

“I don’t enjoy saying ‘no’ to things I’d like to advocate,” he said. “We’re dealing with reality here.”