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New Mexico expected to have strong reserves to end Fiscal Year 2024

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(The Center Square) – New Mexico General Fund revenues should keep growing in Fiscal Year 2025 (FY25), but not as fast as in recent years, the latest forecast from the state’s Consensus Revenue Estimating Group said.

The revenue forecast projects 2.2% growth for Fiscal Year 2025, with $3.48 billion in “new money,” according to the state’s Taxation and Revenue Department.

It is a slower growth than the estimated 10.2% increase over Fiscal Year 2023.

The state’s reserves remain strong, with an estimated 47.3% of recurring appropriations ($3.98 billion) in reserve to end Fiscal Year 2023.

The state’s Consensus Revenue Estimating Group prepared the forecast. Economists from the Legislative Finance Committee, Taxation and Revenue Department, Department of Finance and Administration, and the Department of Transportation comprise the group.

“The latest forecast indicates New Mexico’s finances remain in very good shape with strong reserves,” Taxation and Revenue Secretary Stephanie Schardin Clarke said. “We’ve been able to provide significant tax relief in the past several years while also investing in the state’s future and ensuring the state’s financial future is secure.”

The forecast projects General Fund recurring revenues exceeding $12.7 billion for Fiscal Year 2024 and over $13 billion for Fiscal Year 2025.

“Even with the projected moderation, revenue growth is still above the 10-year trend line,” a release said.

Oil and gas activity are historically high in New Mexico, helping revenue. However, the decrease in prices for these goods will result in less revenue production from that sector.

The state expects a stabilization in wages and spending after a few years of strong growth, the report said.

Meanwhile, tax cuts impact the revenue forecast, but the projections factor in those cuts. The state cut the Gross Receipts Tax rate by 0.25% over the past two years, exempted most Social Security benefits from personal income tax, increased the Working Families Tax Credit and the Low Income Comprehensive Tax Rebate, and created a child credit.

New Mexico has taken action to prevent future revenue slowdowns, the release said. Primarily, it has established new trust funds and boosted distributions to reserves.

The state’s Early Childhood Education and Care Fund is projected to increase to $5.5 billion by the end of 2023.

Plus, a new formula for distributing oil and gas revenue to the Tax Stabilization Reserve will bring that reserve’s value to $3.0 billion at the end of the fiscal year.

“A recent report from Pew Charitable Trusts praised New Mexico’s sustainable budgeting practices, including these automatic transfers to reserves and endowments, as well as stress testing of the revenue estimates,” the release said.

Forecasters warn that national and world events, including changing conditions in global oil markets and national economic trends, can make revenue forecasting less predictable.

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