New Mexico’s budget basics
According to the National Association of State Budget Officers (NASBO), New Mexico’s total expenditures in fiscal year (FY) 2019 were $20.5 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2019 were $2.1 trillion, ranging from $4.5 billion in South Dakota to $311.3 billion in California.
Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.
Per the US Census Bureau, New Mexico’s combined state and local direct general expenditures were $21.5 billion in FY 2017 (the most recent year census data were available), or $10,274 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,449.
New Mexico’s largest spending areas per capita were public welfare ($2,887) and elementary and secondary education ($1,772). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.
New Mexico’s combined state and local general revenues were $21.6 billion in FY 2017, or $10,337 per capita. National per capita general revenues were $9,573. New Mexico uses all major state and local taxes. After federal transfers, New Mexico’s largest sources of per capita revenue were general sales taxes ($1,604) and charges ($1,321), such as state university tuition and highway tolls. New Mexico’s per capita general sales tax revenue is relatively high in part because it taxes nearly all services while most other state exempt at least some services from tax.
New Mexico’s politics
Governor Michelle Lujan Grisham, a Democrat, was elected in 2018 with 57 percent of the vote. The next gubernatorial election is in 2022.
Democrats control both the House of Representatives (46 Democrats to 24 Republicans) and Senate (25 Democrats to 16 Republicans). Control of the governor’s mansion and each house of the legislature gives Democrats a trifecta in New Mexico. All New Mexico House seats are on the ballot in 2020 because representatives serve two-year terms. Senators serve four-year terms, and their seats are on the ballot in 2020.
New Mexico’s budget institutions, rules, and constraints
New Mexico uses an annual budget. The legislature is not required to pass a balanced budget, nor is the governor required to sign one, and deficits may be carried over into the following year. However, the governor must submit a balanced budget, and own-source revenue and allowed borrowing must meet or exceed expenditures. New Mexico does not have any other tax and expenditure limits. The state also does not limit either authorized debt or debt service.
(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)
New Mexico’s recent fiscal debates
- In 2019, lawmakers in New Mexico made several changes to their state’s tax code. New Mexico expanded its earned income tax credit (EITC), known in state as the working families tax credit, increasing its match from 10 percent of the federal earned income tax credit to 17 percent. The state also created a new $4,000 dependent deduction. This new deduction will offset some of state tax increases caused by the Tax Cuts and Jobs Act of 2017 (TCJA). Because New Mexico linked its state personal exemption to the federal personal exemption, it lost its state exemption when the TCJA set the federal exemption at $0. New Mexico increased tax revenue by hiking its top income tax rate (discussed in the next section on the state budget) and reducing the state’s capital gains deduction from 50 percent to 40 percent. In October 2019, the governor created two state tax commissions that will make further recommendations for reforming the state’s tax code and administration.
- One change the legislature has failed to enact is legal and taxable recreational marijuana. The House passed legislation in 2019 that authorized the nation’s first state-operated retail marijuana stores, but it failed in the Senate. However, Governor Grisham supports legalization and released a report in October 2019 that outlined a path toward legal marijuana in New Mexico. The legislature is expected to again debate legalization in the 2020 legislative session.
- In April 2019, Governor Grisham signed New Mexico’s first minimum-wage increase since 2009. The legislation raises the state’s minimum wage from $7.50 to $9 an hour on January 1, 2020. The state’s minimum wage will then increase annually until it reaches $12 an hour in 2023.
New Mexico’s current budget
Governor Grisham announced her proposed FY 2020 budget in January 2019. The governor’s plan included $500 million in new education spending, including additional funding for teacher salaries, college preparation, and preschool. Governor Grisham called her plan a “moonshot for public education in the state of New Mexico” in her 2019 state of the state address.
The legislature passed its budget in March 2019 and generally followed the governor’s recommendations, including $450 million in new education spending. Higher severance tax revenue funded much of the enacted budget’s spending increases, but the legislature also raised the state’s top individual income tax rate from 4.9 percent to 5.9 percent. The tax rate increase does not take effect until tax year 2021 and is only enacted if FY 2020 revenue collections do not exceed FY 2019 levels by at least 5 percent. As of September 2019 it appeared revenues were low enough to trigger the tax hike.
For more on New Mexico’s budget, see
New Mexico’s economic trends
New Mexico’s per capita income (per the Bureau of Economic Analysis) was $41,198 in 2018, ranking 48th among the states. It was below both the national average of $53,712 and the Southwest regional average of $47,535. The state’s median household income (five-year estimate) was $48,059 in 2018, ranking 46th among the states and below the national average of $60,293. New Mexico’s poverty rate was 20 percent in 2018 (five-year estimate), above the national rate of 14.1 percent.
Although New Mexico’s averages tell a story about the entire state, New Mexico is composed of diverse localities. For example, the city of Las Cruces’s median household income was $40,551, and its poverty rate was 24.5 percent; the city of Carlsbad’s median household income was $66,110, and its poverty rate was 14.9 percent.
New Mexico’s unemployment rate has been among the highest in the country over the past few years. Prior to that, it generally tracked the national average and was lower the national unemployment rate during the depths of the Great Recession.