Long-Term New Mexico Revenue Report Show Some Concerns Ahead
The long-term outlook for New Mexico’s finances no longer include the forecast of a possible recession in the near future but does show inflation continuing to moderate.
That’s according to a report presented Thursday at Roundhouse to the Revenue Stabilization and Tax Policy Committee.
The report says New Mexico’s Real Domestic Product will continue slow to moderate growth in the next few decades while employment growth will moderate.
Economic forecasters also say that oil demand for passenger vehicles will peak in 2025 and the move toward electric vehicles will affect the hauling sector by the mid 2030’s.
That could greatly affect New Mexico’s finances where 40% of current general fund revenues come from oil and gas.
Committee Chair Senator Benny Shendo says it’s very important to hear such numbers so the legislature can plan for the long term when those fossil fuel dollars are no longer as prevalent.
“It’s also important for us to keep an eye on that as well, we can’t not take a look at that because we know that day is coming,” he said. “I think the better we understand that and have data to support that then what are the things that we are going to do so we don’t have this cliff effect that people are talking about.”
Economic forecasters IHS and Moody’s predict US oil production will peak in 2028 and 2033 respectively and New Mexico’s production of oil and natural gas will fall in line with national expectations.
This is also expected to have a great effect on New Mexico’s State Road Fund with its largest revenue source coming from motor fuel taxes.
One matter that could be a major problem in future years for the state could be its retiree healthcare obligations.
Legislative Finance Committee Chief Economist Ismael Torres says the healthcare obligations could consume all of the state’s Personal Income Tax revenue in a few decades.
“Growing 12% a year versus personal income tax which is about 4% and that’s how it overtakes that revenue source and becomes an anchor in that category,” he said. “By FY29, we think that that distribution will actually be in the top 10 most expensive expenditures in the state and will continue to reduce as I mentioned personal income tax collections over time.”
Torres also says New Mexico’s reliance on oil and gas revenue which the state has been working to find ways to reduce in future years could have a serious effect on the state’s bond rating.
Currently about 40% of the General Fund relies on oil and gas revenue and nearly 100% of funding for capital outlays.
He says that makes it easier for the state to take on debt during good times, but will raise red flags for bond rating agencies when times are bad and as fossil fuel usage is reduced in the coming years.