Population (July 2003): 1.9 Million
Total State Expenditures - SFY 2002: $8,981 Million (US Total: $1,073,816 Million)
TANF Expenditures - SFY 2002 (% of total): 1.8% (US: 1.3%)
Medicaid Expenditures - SFY 2002 (% of total): 19.4% (US: 20.8%)
(Source: U.S. Department of Commerce, Census Bureau and NASBO 2002 State Expenditure Report)
Although New Mexico's per capita personal income is one of the lowest in the nation, the state does a good job raising revenue. The state's general fund recurring revenue collections are expected to increase by 8.1 percent in SFY 2004. Nearly 16 percent
of New Mexico's general fund revenues come from oil and gas production.
New Mexico has weathered the recent economic downturn well, experiencing only minor declines in revenue later than most states and maintaining an operating reserve well above five percent. The Department of Finance and Administration projects reserve balances will reach 9.6 percent of total recurring appropriations at the end of SFY 2004. State general fund revenues are expected to increase by 4.2 percent from SFY 2004 to 2005 due to abnormally high oil and gas prices as well as improvements in gross receipts, personal income, and corporate income tax collections. Projections suggest New Mexico's revenue will flatten from 2006 to 2008 as oil and gas prices decline and recent reductions in personal income taxes are phased in.
As noted earlier, New Mexico had one of the highest poverty rates in the nation in 2001, with approximately 17 percent of the state's population living in poverty, compared to 11 percent for the nation. New Mexico's unemployment rate is typically higher than most states. However, New Mexico performed better than the nation and most states during the recent economic downturn. In 2002, New Mexico's unemployment rate fell below the national rate and in 2003 and the first few months of 2004, unemployment rates in New Mexico have been only slightly above the national level. New Mexico employment growth has consistently been among the top five among all western states during the last year.
State Budget Development and Implementation
New Mexico's budget cycle begins with the executive budget agency sending funding targets to state agencies for their budget requests. The executive budget proposal typically includes agency budget recommendations by functional category. The Legislative Finance Committee, the fiscal arm of the state legislature, releases its budget proposal at the same time the governor releases the executive proposal. The executive budget agency and staff of the Legislative Finance Committee present their budget proposals to members of the state legislature in public hearings. State legislators then negotiate and pass a budget bill that is sent to the governor for signature.
Several characteristics of New Mexico's budget process provide the governor significant authority in budget development. Many state officials cited the governor's line item veto authority, which in New Mexico includes the ability to veto selected lines and items in any bill that appropriates funds, as the primary source of the governor's authority. For Governor Johnson, New Mexico's governor from 1995 to 2003, this authority was enhanced by his ability to sustain vetoes from legislative overrides. Johnson vetoed more than 700 bills while in office, including budget bills and social welfare proposals. Several state officials interviewed characterized Johnson as a "fiscal conservative" who used his veto authority to suppress social welfare spending. For example, the governor vetoed a 2002-03 budget bill because it did not sufficiently control Medicaid spending, among other reasons.
New Mexico's treatment of federal funds in the budget process also provides the state's governor increased authority over spending decisions. New Mexico is one of few states that does not appropriate all federal funds, thus limiting the legislature's ability to influence spending decisions. Additionally, the governor has authority to spend unanticipated federal funds without the legislature's approval.
The New Mexico Human Services Department administers the state's TANF, Medicaid, and SCHIP programs. Other public welfare programs such as child care, child welfare, adoption, and foster care are administered by the Children, Youth and Families Department, a separate state agency.
New Mexico's Response to Federal Welfare Reform
Welfare reform in New Mexico was a legal and philosophical struggle between the executive and legislative branches of government. The Johnson administration started work on its welfare reform proposal before the federal government enacted the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. The administration's first proposal included several "work first" requirements that the federal government was considering for federal welfare reform including a lifetime limit on receipt of cash benefits, job search requirements, and a limit on the amount of education and training a recipient could apply toward work requirements. Johnson's "work first" reform bill died in committee in early 1996.
The Johnson administration began implementing its reform package in October 1996 without the legislature's approval by using regulatory changes. The first measure to go into effect required welfare applicants to register for work with the state's Department of Labor. Additional requirements implemented by regulations in July 1997 include a three-year lifetime limit on the receipt of cash assistance, requiring recipients to be in a work activity within 60 days of receiving assistance, and new income eligibility requirements such as counting federal housing subsidies and the income of all household members, including those not in the assistance unit, when determining eligibility.
The legislature responded by passing welfare reform legislation that softened several of the measures scheduled to go into effect in July 1997. For example, the legislative proposal included a five-year lifetime limit on the receipt of benefits, instead of the administration's three-year limit, and gave recipients two years to find employment before participating in mandatory work activities or facing penalties. The legislature also tried to stop the administration's reform efforts by inserting language into budget bills that tied the state's $35 million general fund appropriation for welfare to passage of the legislature's welfare reform bill. Governor Johnson ultimately vetoed the legislature's proposals.
In late 1997, New Mexico's Supreme Court ruled in favor of three state legislators and others who argued that Governor Johnson violated the state Constitution's separation of powers provisions when he implemented his welfare reform policies without the legislature's consent. This ruling required the administration to suspend implementation of its reform regulations. The administration ultimately reverted back to the state's pre-TANF welfare program. This ruling was the catalyst that brought the governor and legislature to agree upon a reform package that was enacted in February 1998. This agreement looked much like the federal law. The executive and legislature's struggle over welfare reform did not end with passage of the 1998 act. It continued in the budget process where the legislature pursued expansions to the state's welfare benefits and spending, and the executive pursued fiscally conservative policies.
Other Federal Social Welfare Programs
When research staff interviewed state officials for this project in September 2003, many cited New Mexico's growing Medicaid program as the most pressing issue for the state's social welfare programs. In 2002, Medicaid was one of the largest programs in the state budget, second only to k-12 education spending. In that same year, the program provided health care coverage to one of every five people in New Mexico. The state's general fund spending for Medicaid increased 55 percent from $263 million in 2000 to $407 million in 2004. During that period, New Mexico's Medicaid costs periodically exceeded projections in enacted budgets requiring additional appropriations during the state fiscal year. State officials noted that the cost drivers for New Mexico's program are the same as the rest of the nation including pharmacy costs, personal care services, facility based services, and others. Several officials indicated that New Mexico has not kept pace with others states in instituting measures to control Medicaid costs.
According to Governor Richardson's 2005 executive budget proposal (Richardson took office in January 2003), "without additional cost containment measures and revenue enhancement measures in SFY 2005, the New Mexico Medicaid program will require $115 million of General Fund over what is required for SFY 2004. This increase is greater than the current consensus revenue estimate of increased General Fund revenue for all of state government in SFY 2005." The executive proposal recommended a $54.7 million increase in state funding for Medicaid; $25.7 million in revenue enhancements including bed assessments for nursing homes and hospitals, and increasing the medical insurance premium tax from three to four percent; and cost saving strategies such as a reduction in benefits, increased co-payments, and re-certifying program eligibility every six months rather than every 12 months. Governor Richardson's proposals to increase the premium tax and assess a surcharge on nursing home and hospital beds were passed by the 2004 Legislature and signed by the governor.
Governor Richardson is also spearheading an effort to reform the state's healthcare system to extend coverage to the uninsured through a pooling system. Also noteworthy are the administration's efforts to consolidate children's behavioral health services, which include collapsing funding from many sources for multiple services into one "super" request for proposals.