Who’s afraid of the fiscal cliff? Maybe New Mexico

The good news for New Mexico taxpayers and lawmakers shaping the state’s budget? The December estimate of revenues came out Monday (Dec. 3) and has been revised upward from August by $55 million, with $210 million in “new money.”

The bad news? We’ve got 28 days and counting for Republicans and Democrats in Washington to avoid the so-called “fiscal cliff” and if they don’t, then budgeting for New Mexico is basically anyone’s guess.

“Businesses have already begun scaling back investment, perhaps in anticipation of tax increase and spending cuts embodied in the ‘fiscal cliff,’” Department of Finance Administration Secretary Tom Clifford said in a report to the Legislative Finance Committee. “If the cliff is not addressed, (Gross Domestic Product) growth could fall by as much as 3.5 percent, effectively ending the economic recovery.”

“It’s a major concern,” committee co-chair Luciano “Lucky” Varela (D-Santa Fe) told Capitol Report New Mexico. “So in (the upcoming state) budget, we have taken some cautious recommendations in terms of federal funding.”

If a budget deal isn’t signed in Washington by Dec. 31, massive spending cuts kick in, including automatic reductions in defense.

For a state like New Mexico which has an economy tied to federal projects, the ramifications could be major.

“This may sound weird but I’m not so concerned about Los Alamos and Sandia (national laboratories) being (subject to) defense cuts because my information says research and development continue even if federal budgets are tightened,” state Sen. John Arthur Smith (D-Deming) said. “Where I am concerned is on the ground, with the air bases — Holloman … that would be a very high-risk potential.”

In the updated forecast, New Mexico is expected to collect about $5.8 billion in tax revenue in the fiscal year that starts next July, providing a pool of $210 million in “new money” after some mandated state spending projects are paid for.

The state ended the last budget year in June with cash balances of about $755 million — the equivalent of nearly 14 percent of spending. The new, projected balance is $805 million, an increase of $55 million.

The reserves provide a cushion for the state in case of unexpected financial problems — and going over a fiscal cliff would be a whopper.

So far, there doesn’t seem to be much progress between Democrats (including President Obama) and Republicans on Capitol Hill. Sen. Lindsey Graham (R-South Carolina) told the Sunday talk shows he thinks “we’re going over the cliff,” based on the White House’s initial proposal to Republican congressional leadership.

But Rep. Varela said Monday he thinks a deal will be reached. “I think maybe it’s a ploy, maybe they’re trying to keep us in suspense … I’m optimistic it will happen. I hope it would happen sooner rather than later.”

New Mexico legislators meet for a 60-day session starting Jan. 15 and if a fiscal deal isn’t reached in Washington by then, Roundhouse budget debates will take on even more significance than usual.

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Here’s more from Sen. Smith on the “fiscal cliff” and New Mexico:

And here is the report that DFA Secretary Clifford presented to the Legislative Finance Committee: http://www.scribd.com/doc/115364914/December-2012-Consensus-Revenue-Testimony