The Federal Reserve Bank of Philadelphia released an updated map today of it's monthly "states coincidence index map," which compiles an index using four variables for each state: nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The data shows New Mexico, in February, to be one of the nine worst performing states; five of these including New Mexico are in the Rocky Mountain region. Unemployment in New Mexico is trending upwards (at 8.7% in February), per capita income was down (see Capitol Report here for story on this) by 1.2% in 2009, and the state is suffering from the worst fiscal crisis at least since the Great Depression, caused by a major slowdown in tax revenues caused by the recession. Two years ago revenues were about $6.1 billion; this year (FY2011) they are projected to be at about $4.8 billion, (but see below for adjustment for growth) a drop of over 20%.
Nationwide, the recession was declared over in the second and third quarters of 2009, as growth in GDP resumed. New Mexico, which in the past has been buffered somewhat against national downturns, is still in recession in spite of receiving several billion dollars in stimulus funds from the federal government.
The national recession began more than two years ago, in January 2008. New Mexico state tax revenues began feeling the pinch by the summer of that year, when the governor decided he needed to give taxpayers a rebate on taxes, in spite of warnings we couldn't afford it. Since that time, I've watched in amazement as much of the political class in both parties (with significant exceptions in each party) simply denied the bad news, vilified the messengers of bad news, such as Sen. John Arthur Smith, as though they themselves had invented the data just to show how wicked they were, and then blithely called for huge increases in taxes to cover the shortfalls, while doing virtually nothing to reduce the worst excesses in spending of the Richardson administration, long after his credibility had been squandered through the pay-to-play allegations that have been amply covered in the Albuquerque Journal, and long after many of his spending excesses had been amply uncovered by various media outlets.
I caught Sen. John Arthur Smith at a grocery store in Santa Fe this afternoon, and checked out some figures with him: At this moment, after a special session, the budget the state legislature passed ($5.67 billion) relies on a growth rate of 6% for FY 2011. At zero growth tax revenues will produce $4.8 billion. At 6% growth this will bring in revenues estimated at $5.1 billion. Tax increases of $235 million raises the revenues to $5.335 billion. But remember, the governor vetoed $68 million in food taxes, a measure applauded by many sectors as politically correct, so the total only goes up to $5.267 billion. And about $300 million in federal stimulus dollars available for FY 2011, brings the total up to $5.567 billion, about $100 million short of the total budget.
Now, Smith clued me in to the following: State reserves, which were $130 million in December are set aside each year to cover shortfalls in revenues. The state has spent $80 million in reserves since December (because last year's budget was too high), so the state has only about $50 million left. At the current rate of expenditure of reserves ($20 million per month), the state will run out of reserves in May. The governor has at his disposal about $20 million in leftover stimulus money for FY 2010, so this should take us to the end of June 2010, at which time the state will be completely without reserves. Should this come true, the state will begin FY 2011 on July 1 of this year with a $100 million shortfall and no reserve cushion. This alone would cause a serious cash flow problem and quick, possibly brutal, cost-cutting. But it gets worse: if the state grows only at 3% in FY 2011 instead of the 6% we are relying on, there will be a total shortfall of $250 million. If the state grows at only 2% the shortfall will be $300 million. WITH NO RESERVES THE FATE OF THE BUDGET DEPENDS ENTIRELY ON MATCHING THE 6% GROWTH RATE.
So a lot is riding on just how much the state will grow after June 2010. There is little reason, after today's Reserve Bank of Philadelphia report and map, to believe a good spurt of economic growth is likely to occur this year, much less a 6% spurt of growth for all of FY 2011. Get ready for more cuts next summer or fall. Plus, perhaps, a few more tax increases. Why is the political class of New Mexico not talking more about this? Why are we not preparing for more cuts? Why are our legislators not insisting that we cut the waste (readers will know my favorite candidate to be cut) NOW from state government? Why aren't they identifying which cuts can be made with the least damage? You want Governor Richardson to make these cuts for you? Can't you think on your own in the face of a lame duck governor who squandered his ethical credibility long ago and helped get us into this mess by spending like a drunken sailor? Where is your pride?