Dire revenue picture

ALBUQUERQUE — Progressives have given the Richardson administration a free pass when it comes to tax policy. Leading progressive causes such as health care reform and funding public education depend on a healthy revenue stream, but that revenue stream will not be there in the next several years. The reason is barely noticed policy decisions taken by the Richardson administration, not the economic slowdown that has taken hold in New Mexico this year.

New Mexico’s general fund pays for education, health care, and public safety for the people of New Mexico. The general fund must grow every year to keep up with inflation and population growth or services must be cut. Each year after the legislative session, the Legislative Finance Committee publishes a Post Session Review summing up the state’s tax and spending position in the wake of the budget passed during the session. This year the LFC estimated that a baseline budget that provides a ‘bare bones’ level of services would need to grow by 3.4 percent each year for the next three years. Unfortunately, that Post Session Review expects that revenue growth will hover between 2.4 and 3.1 percent between FY 2008 and FY 2012. (Fiscal years run from July to June and are named for the second half of the year.) New Mexico revenue growth will not even reach the level needed to maintain basic services.

Why should we care about stagnating revenue growth? Because improvements to New Mexico’s social infrastructure cost money. New Mexico has been studying the issue of public school funding equity and adequacy for the past three years. The LFC finds that implementing the recommendations of the public school funding task force would cost $118.6 million in FY 2010 and rise to $322 annually by FY 2012. Pre-Kindergarten programs would cost $33 million annually by FY 2012. Keeping up with the state’s highway and transportation needs would cost $245 million more annually. Taking care of highways and bridges will be neglected only until the first bridge collapses.

Many health care advocates strongly support expanding the Medicaid program. Covering children whose families make less than three times the federal poverty level FPL would cost $53.1 million in FY 2012. Medicaid coverage for adults at less than three times FPL would cost $828.6 million.

Altogether, the LFC estimates that there will be $1.554.6 billion in unmet needs annually by FY 2012. But revenues will be growing by only 2.5 percent a year or about $162 million. That is a big gap between what we need and the revenues that are coming in.

How did we get to this desperate pass? The explanation is a combination of the personal income tax cuts passed in 2003 and ongoing nibbling away at the gross receipts tax base in the name of economic development. At the time the revenue estimates were made in December 2007, employment growth was expected to be about 1.5 percent out to FY 2012 and personal income growth was expected to be about 5 percent. With the onset of the national recession, those goals will not be met. It is ironic that many legislators who now see the need for education funding increases, health care reform, and highway upkeep voted for tax cuts that will cost upwards of $666 million per year FY 2012. What were they thinking? These same legislators will now merrily blame the revenue slowdown on the recession, but this is simply bad faith. The state’s economy and its revenues no longer grow in tandem due to these tax cuts. The state’s fiscal problems took shape long before the recession and they will still be here after it is gone.

Gerry Bradley is the former chief economist for the New Mexico Department of Labor.