Concern over coronavirus, oil prices leads New Mexico’s governor to veto $50 million in local road projects

SANTA FE, New Mexico — New Mexico’s governor has vetoed hundreds of local roadway projects as a plunge in world oil prices threatened to reverse budget surpluses that have allowed the state to make major new investments in government salaries, public school education, health care and business incentives.

The state government relies on the oil sector for a third or more of its annual general fund income, and lawmakers last month thanked the petroleum industry daily on the Senate and House floors as they drafted an 8% increase in state general fund spending for the coming fiscal year.

“We do not yet know the degree to which COVID-19 and declining oil prices will impact our state’s economy,” said Democratic Gov. Michelle Lujan Grisham in a message accompanying the veto of local transportation projects worth nearly $50 million. “Given this uncertainty, I bear a heightened obligation to ensure that all significant expenditures constitute a demonstrably sound investment.”

She has until Wednesday to approve or veto any and all portions of the $7.6 billion state budget bill.

In an email, Lujan Grisham spokeswoman Nora Meyers Sackett described the Legislature’s budget plan as financially responsible but added that the governor “will be making certain specific vetoes to counteract the potential of downward revenue projections.” She did not specify additional possible changes.

“It looks like a perfect storm has hit,” said state Senate Finance Committee chairman John Arthur Smith, describing a likely decline in anticipated state government revenue from oil-sector volatility. “You’ve got to include the coronavirus. The immediate impact on that is going to be right there in Santa Fe on tourism.”

The Democratic senator from Deming said a buildup in state financial reserves — estimated at $1.8 billion as of July 2019 — gives New Mexico time to maneuver if oil prices do not recover quickly. At the same time, he said it may be prudent for the governor to veto one-time spending on infrastructure projects.

There have been no confirmed cases of COVID-19 in New Mexico since the state started testing last week. The virus has infected about 600 people in the U.S., and at least 25 have died, most in Washington state.

Record-setting oil production in the Permian Basin that overlaps southeastern New Mexico has allowed the state to go on a spending spree aimed at improving education, breaking endemic cycles of poverty and fostering new industries. New Mexico has the highest rate of poverty in the American West, according to Census Bureau estimates.

Richard Anklam, of the New Mexico Tax Research Institute that tallies annual state and local government revenue from oil and natural gas, said New Mexico is more dependent on oil than most states — and vulnerable to energy price fluctuations that can reduce incentives for industry investment. Texas-based Exxon Mobile last week announced it will reduce the number of drilling rigs in the Permian.

“There is a legitimate reduction in demand because people are curtailing travel and other activities” due to the new coronavirus, Anklam said. “That kind of pressure would impact our primary industry, oil and gas production. ... If it makes sense for them to invest no further for some time, that’s what they’ll do.”

The budget proposal from the Democratic-led Legislature includes 4% average pay raises for public school teachers and state workers and new funding to extend school calendars. Most, if not all, state agencies would expand their ranks, with $320 million set aside for a new early childhood education endowment and $17 million toward the launch of a free college tuition program for in-state, two-year students.

Monday morning’s oil-price decline was the largest since the days following the Sept. 11 attacks.

A 2016 downturn in oil prices left a hole in the state budget that triggered a series of austerity measures: New Mexico slashed funding for its public universities, bumped up entrance fees at historic sites and public museums, and requisitioned school district cash balances.

This time, the state is on surer financial footing with multiple reserve accounts to draw on, legislative leaders said.

“The biggest difference is that we have a very, very strong reneserve, and we’ve got several savings funds,” said Rep. Patricia Lundstrom, a Gallup Democrat and chairwoman of the House Appropriations and Finance Committee.

She said it is not yet necessary to reconsider salary increases and new spending at state agencies.

“Nobody is going into a deep panic by any means because we can easily look at trimming down expenses,” said Lundstrom, referring to proposed infrastructure projects and not the state’s operating budget.