And that hole could double in size if Congress fails to send extra stimulus dollars New Mexico’s way to help pay for Medicaid, the government’s low-income health insurance program.

It’s not exactly the kind of political climate gubernatorial candidates would prefer.

“The next governor is going to have her hands full,” Sen. John Arthur Smith, D-Deming, and chairman of the Senate Finance Committee, said Wednesday, confirming the challenges ahead for the next occupant of the governor’s mansion.

The two women running to become New Mexico’s next chief executive responded Wednesday to news of the worsening financial news with plans on how to address the problem that varied in degrees of specificity. But not before taking swipes at each other.

“While my opponent has put forward thin one-liners and platitudes, my plan tells New Mexicans exactly how I propose to cover the budget gap,” Democratic Lt. Gov. Diane Denish said in a statement.

Republican District Attorney Susana Martinez shot back: “Diane Denish’s scheme is just more of the same Enron accounting that created this budget mess.”

Both candidates pledge to cut political appointees

Three and a half months before Election Day, Denish’s and Martinez’s plans to address the state’s budget woes reflected a mixture of gritty realism and pie-in-the-sky election-year promise-making at a time when New Mexico finds itself foundering financially.

Martinez, whose campaign sent out a 364-word statement, promised to implement zero-growth budgets at most state agencies and rid state government of waste and fraud. She said she could find 5 percent to cut, but didn’t go into too much detail about how to accomplish that goal.

Denish, whose campaign sent out a six-page report issued earlier this year, touted a voluntary one-time buy-out she would offer to state government workers and a thorough review of tax credits to make sure they create jobs. If they don’t, Denish would push to have them eliminated. What she didn’t mention is that such a review likely would take months, and wouldn’t save money this year.

Reducing the state’s vehicle fleet by 10 percent and merging several state agencies, thereby eliminating several cabinet-level positions and salaries, were other ideas Denish offered while Martinez talked of shrinking the state’s payroll through attrition.

While the two candidates played up their differences, there were similarities. Both promised to eliminate the hundreds of jobs across state government held by political appointees – a measure expected to save $8.8 million a year.

Both in the past also have mentioned reforming how the state doles out money for brick-and-mortar projects, also known as pork, an often-touted goal that somehow never found enough support among state lawmakers to become a reality during the past 7 1/2 years.

Everything is on the table—including education

Both gubernatorial candidates made clear Wednesday that while they were ready to cut expenses while eschewing major tax increases, they were prepared to protect the most basic services, including education.

It’s a scenario some lawmakers have questioned: keeping K-12 education untouched in future budget cutting. Education has suffered cuts in the past, but K-12 education is a big target, representing roughly half of the state budget.

“We can’t hit agencies” like the state transportation department any more, Sen. Steven Neville, R-Aztec, said Wednesday. “We might have to talk about wholesale elimination of functions. We may have to say we can’t provide XYZ anymore. Or the big taboo – education. We are going to have to re-look at education – at administration and overhead.”

Agreed Smith: “Everything on the spending side is on the table, including education.”

Sen. Dede Feldman, D-Albuquerque, however, said she was hard-pressed Wednesday to name where the state could cut in education.

“All I can tell you is I just finished talking to a … school nurse,” Feldman said. “People (at Albuquerque Public Schools) are really worried about what will happen this school year. We have a school principal covering two schools. School nurses who are covering more and more kids.”

Feldman also wondered if the state’s health system could take any more hits.

Funding for 33 county and community health councils and five Tribal Health Councils around the state already has been slashed this year because of the state’s budget troubles. The councils coordinate different agencies, organizations, in a community or county, that are addressing health needs at the local level, advocates have said.

“Doing away with these planning councils … it’s like your plane is about to crash and you are ripping out your control system,” Feldman said. “If we are looking to make a safe landing … we cannot afford to keep cutting those vital programs.”

No first-year governor will want to sign tax increases

“We have to look at what the situation is during the regular session,” Feldman said.

Smith ruled out a major tax increase as impractical, saying a first-year governor wouldn’t want to sign off on a tax increase to start off her tenure, he said. Smith acknowledged, however, that lawmakers would discuss – and likely would be open to– closing certain tax credits, deductions or exemptions.

Wednesday’s news wasn’t a surprise to him, Smith said. He and other senators had predicted that the Richardson administration’s projection that revenues would grow by 6 percent was overly optimistic. In the end revenues have grown by about 3 percent.

He also said the news could get worse.

New Mexico is one of 21 states without a contingency plan if Congress doesn’t pass legislation approving extra Medicaid dollars to shore up state spending plans.

Congress is currently debating whether to extend extra federal dollars for the government’s low-income health insurance program through June 30, 2011, six months beyond the current deadline of Dec. 31. If the extra dollars don’t come, however, New Mexico will be stuck with a $160 million hole in the state budget, meaning the current $160 million hole could double in size. That’s because this year’s state budget assumed the extra Medicaid dollars from the federal government.

Governor has authority to cut now

Martinez and Denish might have one saving grace. This year’s state budget gives Gov. Bill Richardson the ability to cut monthly allotments to agencies across state government, meaning some of the hard work of balancing this year’s budget actually might occur before the next governor takes office.

“Agencies have been preparing for a potential shortfall and, as a precautionary measure, were instructed to reduce spending by as much as 5 percent at the start of this fiscal year,” said Nicole Gillepsie, spokeswoman for the Department of Finance and Administration, the governor’s budget arm. “Agencies are hard at work finding ways to achieve maximum efficiency with the aim of avoiding reductions to services or additional cuts focused on state employees.”

Gillepsie also said the governor is “working to develop a plan for reducing agency budgets, and will present the plan for Legislative Finance Committee review and Board of Finance approval.”

Smith said he doesn’t hold out much hope that much cutting will occur before the next governor takes over.

“I don’t think this governor is going to move quickly enough,” Smith said.

The governor’s office did not respond to an e-mail from The Independent asking for a response to today’s news of the state’s worsening financial situation.

The Legislative Finance Committee estimates the state’s revenue collections are running $76 million short for this year. Cash reserves will need to plug that gap, which may grow between now and the end of June. Gov. Richardson vetoed a $68 million food tax imposed at the March special legislative session, saying cash reserves plus $20 million in stimulus funds will pick up the slack next fiscal year, which starts July 1.

Next year, the revenue to balance the budget includes $200 million in stimulus funds, according to Massey. When the Legislature convenes early next year, the 2012 budget will have to be crafted without those stimulus funds.

The estimates were given to the Legislative Finance Committee at a meeting in Angel Fire this week.

In 2008, the state’s revenues were about $6 billion, so in two years the state has seen a $1 billion drop.

In fiscal year 2009, the state relied on federal stimulus dollars and trimmed agency budgets to plug a shortfall of about $309 million. The current budget was crafted with the decline in revenues in mind.

According to Massey, the decline is largely attributed to the national recession, rather than a decline in oil and gas revenues.

The governor is convening a special session in October to address the shortfall this year. Options for closing the gap include dipping into the states reserve fund, finding ways to raise revenue, rolling back unused capital outlay funds, or making more cuts.