Presentation to the
Association of Commerce and Industry
January 10, 2017
David Abbey, Director
N.M. Legislative Finance Committee
General Fund
Fiscal Outlook
Overview
2
Significant reductions in expectations for employment, wage and salary, and state economic growth
December revenue estimates for FY17 and FY18 are each down about $130 million from adjusted August forecast and are each down $866 million from December 2015 forecast
FY17 revenues projected to fall below appropriations by $237.9 million
Historically low reserves
Solvency again should be first order of business for the 2017 legislative session
Recurring spending reductions raise constitutional issues and service delivery is threatened
New Mexico employment growth forecasts revised
downward from August to December
3
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
New Mexico Employment Growth (Year-over-Year Percent Change)
Source: Workforce Solutions Department, BBER, Moody's
August Forecast
Estimate: 1.3%
December Forecast
Estimate: 0.4%
Current employment levels are lower than 2005;
wage & salary growth declined since 2014
4
2005: 871,248
2008: 902,411
866,203
-4%
-2%
0%
2%
4%
6%
8%
700
750
800
850
900
950
thousands
New Mexico Total Labor Force and Wage & Salary Growth
Employment Wage & Salary Growth Source: US Bureau of Labor Statistics
The last 10 years were a “lost decade” for New Mexico for
employment and wage and salary growth.
Average weekly hours and average weekly earnings
in N.M. are not keeping pace with the U.S.
5
33.0
33.5
34.0
34.5
35.0
35.5
36.0
36.5
Average Weekly Hours Per Worker(Private Sector, Seasonally
Adjusted)
US NM
Source: Federal Reserve Economic Data (FRED)
500
550
600
650
700
750
800
850
900
950
Oct-
06
Ma
y-0
7
De
c-0
7
Jul-0
8
Feb
-09
Sep-0
9
Apr-
10
No
v-1
0
Jun-1
1
Jan-1
2
Aug-1
2
Ma
r-1
3
Oct-
13
Ma
y-1
4
De
c-1
4
Jul-1
5
Feb
-16
Sep-1
6
Average Weekly Earnings (dollars per week)
U.S. N.M.
Source: Federal Reserve Economic Data (FRED)
Average weekly hours are the lowest in a decade.
Mining sector may have finally hit bottom; other
sectors that were growing rapidly are slowing
-5
-3
-1
1
3
5
7
9
11
13
15
17
19
21
Jan-1
1
Ma
r-1
1
Ma
y-1
1
Jul-1
1
Sep-1
1
No
v-1
1
Jan-1
2
Ma
r-1
2
Ma
y-1
2
Jul-1
2
Sep-1
2
No
v-1
2
Jan-1
3
Ma
r-1
3
Ma
y-1
3
Jul-1
3
Sep-1
3
No
v-1
3
Jan-1
4
Ma
r-1
4
Ma
y-1
4
Jul-1
4
Sep-1
4
No
v-1
4
Jan-1
5
Ma
r-1
5
Ma
y-1
5
Jul-1
5
Sep-1
5
No
v-1
5
Jan-1
6
Ma
r-1
6
Ma
y-1
6
Jul-1
6
Sep-1
6
No
v-1
6
New Mexico Employment Level ChangeMonth-over-Month (thousands of jobs)
Education and Health Services Leisure and Hospitality
Trade, Transportation, and Utilities Professional and Business Services
Mining and Logging
Source: Bureau of Labor Statistics, Current Employment Statistics (CES) Survey, November 2016
6
Oil and natural gas prices are now relatively stable
but at half the prices of two years ago
7
$1.00
$3.00
$5.00
$7.00
$9.00
$11.00
$13.00
$15.00
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
$/m
cf$/b
bl
Current Oil and Natural Gas Prices
CREG Dec 2016 Oil ONGARD Oil Weighted WTI (w/ diff)
ONGARD Gas Weighted HH CREG Dec 2016 Gas
Source: Weighted WTI averaged 33/33/33 EIA, GI, NYMEX, with -$4.20/bbl differential. Weighted HH averaged 33/33/33 EIA, GI, NYMEX.
$60.67
$37.85
$43 est.
$48 est.
$3.78
$2.42
$3.15 est.
$3.31est.
Oil production remains high; gas production
gradually declining
8
Drilling activity significantly down from highs in FY15;
FY17 activity is stagnant.
-
20
40
60
80
100
120
140
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
July
Septe
mb
er
No
ve
mbe
r
Janu
ary
Ma
rch
Ma
y
July
Septe
mb
er
No
ve
mbe
r
Janu
ary
Ma
rch
Ma
y
July
Septe
mb
er
No
ve
mbe
r
Janu
ary
Ma
rch
Ma
y
July
Septe
mb
er
No
ve
mbe
r
Janu
ary
Ma
rch
Ma
y
July
Septe
mb
er
No
ve
mbe
r
Janu
ary
Ma
rch
Ma
y
July
Septe
mb
er
No
ve
mbe
r
Janu
ary
Ma
rch
Ma
y
July
Septe
mb
er
FY11 FY12 FY13 FY14 FY15 FY16 FY17
Acti
ve R
igs
Millio
ns o
f B
arr
els
of
Oil &
T
en
s o
f M
illio
ns M
CF
of
Gas
Monthly Oil & Gas Production and Average Active Rig Count July 2011 to Present, by Fiscal Year
Gas Oil Active RigsSources: EMNRD, Baker-Hughes
Updated: 12/20/2016
OPEC production remains high, and high levels of U.S.
crude oil supply in storage since January 2015 contributes
to global oversupply and oil price suppression
9
900
950
1,000
1,050
1,100
1,150
1,200
1,250
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
U.S. Crude Oil Supply in Storage (million barrels)
Source: EIA, updated 11/29/2016
OPEC reached a deal to cut production but has a varied history of compliance
with its own agreements; uncertainty remains on whether cuts will be enforced
Total GRT vs. Total Wages and Salaries
10
The oil and gas industry shows the greatest level of divergence, but healthcare,
retail, and other industries also show the same issue
20.0
22.0
24.0
26.0
28.0
30.0
32.0
34.0
36.0
38.0
40.0
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
$700.0
Q2-
2008
Q3-
2008
Q4-
2008
Q1-
2009
Q2-
2009
Q3-
2009
Q4-
2009
Q1-
2010
Q2-
2010
Q3-
2010
Q4-
2010
Q1-
2011
Q2-
2011
Q3-
2011
Q4-
2011
Q1-
2012
Q2-
2012
Q3-
2012
Q4-
2012
Q1-
2013
Q2-
2013
Q3-
2013
Q4-
2013
Q1-
2014
Q2-
2014
Q3-
2014
Q4-
2014
Q1-
2015
Q2-
2015
Q3-
2015
Q4-
2015
Q1-
2016
Q2-
2016
Q3-
2016
Total GRT vs. Total Wages & Salaries
Quarterly GRT (All Industries) NM Total Wages & Salaries
GRT in last 12 months lagging wages and salaries significantly
Hard to explain but possible data issues – wage and salary data may be incorrect
Wages and salaries increasing despite slow to negative job growth, loss of high-paying jobs, and declining average hours worked per week
Gross receipts tax revenues in July and August
were the lowest for those months in six years, and
September was the lowest in four years.
11
$120,000,000
$140,000,000
$160,000,000
$180,000,000
$200,000,000
$220,000,000
Gross Receipts Tax Revenues Year-over-Year Comparison
FY12
FY13
FY14
FY15
FY16
FY17 YTD
Sources: LFC files, DFA GenFund reports
Health care is the fastest growing industry in the state but remains
largely untaxed; growth in GRT from the industry was just 0.5 percent
year-over-year in FY17 Q1.
Matched taxable gross receipts in FY17 Q1 are
down in nearly every major industry
12
Matched Taxable Gross Receipts by Industry July - September 2016
IndustryMatched Taxable
Gross Receipts
Year-over-Year
Change
Mining, Quarrying, and Oil and Gas Extraction $442,645,142 -38.3%
Utilities $622,505,628 -0.6%
Construction $1,619,371,168 1.1%
Manufacturing $368,985,838 -22.6%
Wholesale Trade $453,465,694 -26.7%
Retail Trade $2,901,049,482 -3.8%
Transportation and Warehousing $142,106,135 -22.7%
Information $632,521,528 -4.3%
Real Estate and Rental and Leasing $301,455,251 -10.4%
Professional, Scientific, and Technical Services $1,738,557,802 -1.0%
Administrative/Support & Waste Management/Remediation $294,914,557 -8.8%
Health Care and Social Assistance $714,910,104 9.6%
Leisure and Hospitality Services $1,157,074,477 0.9%
Other Industries $1,354,500,072 n/a
Total $12,744,062,878 -6.2%
FY17 Q1 revenue collections are down in all major
categories
13
$(30.64)
$4.64
$(37.43)
$(7.42)
$(10.24)
$(33.77)
$(3.68)
-40
-35
-30
-25
-20
-15
-10
-5
0
5
10
September YTD Revenue Collections –FY17 versus FY16 (in millions $)
Source: LFC Files
Risks to Forecast
14
Revenue & Reporting Risk
Issues with data availability and reliability
Uncertainty on cause for large declines in corporate income tax (CIT) and
gross receipts tax (GRT) revenues
Wide array of tax expenditures; professional data-mining to find tax
loopholes
Los Alamos National Laboratory contract could go to non-profit
Energy volatility
Significant variability in market pricing
Global oversupply
Application of advanced technologies and doing “more with less”; jobs in the
mining industry have not recovered
Consistent negative growth in general fund investment
pool end-of-month balances since May 2015
15
September through November were each worse than the month
before, but December improved slightly for percent decline
-33.9%
-32.1%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
-2,500
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
pe
rcen
t ch
an
ge y
ear-
ov
er-
year
mil
lio
ns
$
State General Fund Investment Pool Balances
FY 2017 FY 2016 FY 2015
FY14 to FY15 % change FY15 to FY16 % change FY16 to FY17 % change
Source: State Treasurer's Office
16
17
2017 Session:
• Address solvency; “now money” is harder to find
• Recurring revenue is less than current spending
• Spending outlook: many agencies are already down 8-10%
from FY16; challenges in providing services
18
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
-$100
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
Mill
ions
General Fund Reserves (Total and Percent of Recurring Appropriations)
Other Reserves Tobacco Permanent Fund
Tax Stabilization Reserve % GF Reserves Source: LFC Files
FY17 general fund reserves projected to be negative; revenue
down 9 percent in FY17 Q1 year-over-year
FY16 general fund reserves at lowest point in at
least 15 years
Appropriations exceeded revenues in FY15 and
FY16; expected to exceed revenues for FY17
19
$4,500
$4,650
$4,800
$4,950
$5,100
$5,250
$5,400
$5,550
$5,700
$5,850
$6,000
$6,150
$6,300
$6,450
mill
ions
Appropriations: General Fund and Temporary Funds
General Fund Federal Funds
Other Funds Recurring Revenue
Source: LFC Files
• Recurring revenues in FY17 at lowest point since FY11
• FY17 appropriations lower than FY09
Medicaid is crowding out spending – it has more than
doubled its share of the state’s operating budget
20
• Medicaid’s share of the budget is up 8 percent since FY01; public and higher
education’s shares of the budget are each down 3 percent from FY01
• Agency budget cuts are significant – up to 10 percent in FY17
32%
34%
36%
38%
40%
42%
44%
46%
48%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Percent Share of General Fund Operating Budget, FY96-FY17
HEALTH, HOSPITALS & HUMANSERVICES (W/O MEDICAID)
MEDICAID
PUBLIC SAFETY
HIGHER EDUCATION
OTHER
PUBLIC EDUCATION*
* Secondary axis (right)Source: LFC Files
Spending growth since FY15 trending downward in
every category except Medicaid
21
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
FY13 OpBud FY14 OpBud FY15 OpBud FY16 OpBud FY17 OpBud
Decline in General Fund Operating Budget by Category, FY13-FY17 (year-over-year % change)
HEALTH, HOSPITALS &HUMAN SERVICES(EXCLUDING MEDICAID)
MEDICAID
PUBLIC SAFETY
PUBLIC EDUCATION
HIGHER EDUCATION
All OTHER
Source: LFC Files
FY17 general fund spending on higher education is down 7 percent from
FY16, spending on public education is down 2 percent, and spending on
health and human services excluding Medicaid is down 6 percent
State government has cut nearly 3,000 jobs since FY09
22
21,790 21,914
21,115 20,747
20,471
20,494
20,494
20,710
20,334
19,863
19,066
17,901
17,475
17,983 17,796
17,390
$1.00
$1.05
$1.10
$1.15
$1.20
$1.25
$1.30
15,000
16,000
17,000
18,000
19,000
20,000
21,000
22,000
23,000
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
pers
on
nel
ap
pro
pri
ati
on
s(i
n b
illio
ns)
nu
mb
er
of
FT
E
Personal Services and Employee Benefits Appropriations, Baseline FTE Headcount and Authorized FTE
(total of top 20 agencies)
Total Appropriations Authorized FTE Baseline FTE Headcount
Source: LFC Files
FY16 ending headcount down 2 percent from FY15 and
down 14 percent from FY09
23
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
New Mexico Salary Increase vs. U.S. Market
NM Salary Increase WorldatWorkSource: SPO
High annual turnover and vacancy rates
24
1% Increase Cost
(in thousands)
FTE
Affected
Annual
Turnover Rate
Current
Vacancy Rate
CYFD
Youth Care Specialists $120.8 234 22% 26%
CPS Social Workers $291.1 517 29% 18%
Nurses $15.5 20 Unknown Unknown
DPS
State Police Officers $864.2 667 7% 20%
Forensic Scientists $23.5 44 20% 30%
Dispatchers $39.2 102 26% 22%
DOH
Nurses $681.5 321 25% 21%
Miner's Hospital
Nurses $69.3 36 25% 29%
Judiciary
Judge pay $286.5 167
Court Clerks $277.3 700 32% 12%
Statewide Average 14% 13%
Source: LFC Files
Compensation Increase Cost, Vacancy, and Turnover Rates for High-Demand
Positions
25
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
FY14 FY15* FY16*
4th Grade Scores Proficient or Above
All Reading ED Reading All Math ED Math
ED - Economically Disadvantaged
*PARCC Assessment Source: PED
Pension fund solvency remains
threatened
26
Investment returns weak in recent years
Investment return assumptions (discount rates) too high
Payroll, salary and mortality assumptions too optimistic
Amortization or “funding periods” longer than the minimum 30 years
(in millions of dollars)
Valuation dateActuarial Value of
Assets
Actuarial Accrued
Liability
Unfunded Actuarial
Accrued Liability (3-2)Funded Ratio (2/3)
Annual Covered
Payroll
UAAL as % of
payroll (4/6)
(1) (2) (3) (4) (5) (6) (7)
The market value of
the assets held,
adjusted for deferred
gains and losses.
The present value of
projected benefits
attributable to service
already rendered.
The portion of liability
being amortized over
time. Having a UAAL
does not always mean
a plan is underfunded.
The funded condition
of a pension plan
over a 30 year
amortization period.
An upward trend is
desirable.
A measure of total
salaries for all plan
members provided
w ith benefits through
the terms of a plan.
A measure of a
plan's solvency. A
downward trend is
desirable.
30-Jun-11 $11,855.2 $16,826.4 $4,971.2 70.5% $1,935.0 256.9%
30-Jun-12 $11,612.0 $17,788.0 $6,176.0 65.3% $1,994.3 309.7%
30-Jun-13 $12,438.2 $17,057.4 $4,619.2 72.9% $2,049.7 225.4%
30-Jun-14 $13,482.8 $17,784.4 $4,301.6 75.8% $2,102.3 204.6%
30-Jun-15 $14,074.9 $18,786.5 $4,711.6 74.9% $2,248.3 209.6%
30-Jun-16 $14,654.8 $19,474.2 $4,819.4 75.3% $2,135.2 225.7%
30-Jun-11 $9,642.2 $15,293.1 $5,650.9 63.0% $2,523.8 223.9%
30-Jun-12 $9,606.3 $15,837.0 $6,230.7 60.7% $2,495.3 249.7%
30-Jun-13 $9,828.5 $16,362.3 $6,533.8 60.1% $2,516.9 259.6%
30-Jun-14 $10,715.0 $16,971.3 $6,256.3 63.1% $2,538.9 246.4%
30-Jun-15 $11,472.4 $18,014.4 $6,542.0 63.7% $2,610.3 250.6%
30-Jun-16 $11,899.7 $18,536.4 $6,636.7 64.2% $2,612.0 254.1%
Source: ERB, PERA, and LFC Files
(in millions of dollars)
Public Employee Retirement Association (PERA)
Educational Retirement Board (ERB)