General Fund Recurring Revenue Outlook JUNE 17, 2020 June 2020 - PowerPoint PPT Presentation

General Fund Recurring Revenue Outlook JUNE 17, 2020

June 2020 Consensus Recurring Revenue Outlook (Attachment 1 of CREG Memo) FY20 FY21 FY22 General Fund Recurring Revenues and Appropriations (billions) December 2019 Consensus* $7,776.4 $7,870.5 $7,925.6 $8.5 June 2020 Adjustments ($439.0) ($1,979.0) ($1,705.0) $8.0 June 2020 Consensus $7.5 $7,337.5 $5,891.5 $6,220.5 $7.0 Annual Percent Change -8.4% -19.7% 5.6% $6.5 *2020 legislation adjusted $6.0  Spending adjustments or additional reserve $5.5 authorization is required to balance the FY20 $5.0 budget $4.5 $7.1 $7.6  Without changes, FY21 revenues and reserves $4.0 FY18 FY19 FY20 FY21 FY22 would be insufficient to meet appropriations Nonrecurring Appropriations  “New money” – FY22 recurring revenues less FY21 Recurring Appropriations June 2020 Consensus Forecast recurring appropriations – estimated at negative December 2019 Consensus Forecast $1.4 billion prior to any legislative changes Pessimistic Optimistic Source: Consensus Revenue Estimate, June 2020 1

Assumptions and Inputs (Attachments 2 and 5 of CREG Memo) U.S. Real GDP Forecasts New Mexico Total Employment New Mexico Oil Production and Prices Forecasts (in thousands) (trillions) (barrels in millions, dollars per barrel) 900 $20 850 400 $80 800 365 $19 360 350 355 750 350 $70 $18 700 300 $60 650 $17 255 600 250 $50 $16 2019Q1 2019Q3 2020Q1 2020Q3 2021Q1 2021Q3 2022Q1 2022Q3 2023Q1 2023Q3 2024Q1 2024Q3 2025Q1 2025Q3 225 200 $40 $15 $41.00 $42.50 Baseline Optimistic Pessimistic 2 150 $30 Source: BBER May 2020 Forecast $14 $31.00 New Mexico's Weekly Unemployment 100 $20 $13 Insurance Initial Claims vs. Continued Claims (in thousands) 30 120 $10 50 $12 25 Continued Claims 100 2019:3 2019:4 2020:1 2020:2 2020:3 2020:4 2021:1 2021:2 2021:3 2021:4 2022:1 2022:2 0 $0 20 80 Initial Claims FY17 FY18 FY19 FY20 FY21 FY22 15 60 NM Oil Production - Dec 2019 Forecast 10 40 Optimistic (20% probability) NM Oil Production - June 2020 Forecast 5 20 Baseline (45% probability) NM Oil Price - Dec 2019 Forecast 0 0 Pessimistic (35% probability) 1/4/20 1/18/20 2/1/20 2/15/20 2/29/20 3/14/20 3/28/20 4/11/20 4/25/20 5/9/20 5/23/20 NM Oil Price - June 2020 Forecast Source: Consensus Revenue Estimates, December 2019 and June 2020 Source: IHS Markit, May 2020 Forecast Source: U.S. DOL, N.M. WSD 2

Stress‐Testing the Estimate Stress‐testing strengthens the state’s reserve position (Attachments 3 and 4 of CREG Memo) and ability to plan for alternate outcomes General Fund Recurring Revenue Sensitivity Analysis (in millions) $9,000 Pessimistic  Optimistic Scenario Optimistic $8,000 June 2020 Consensus  Less severe recession & quicker recovery $168 $850 December 2019 est. -$78 $7,000  Faster recovery of oil prices than the baseline, leads $590 to production increases in FY22 $6,000  FY22 revenues still $930 million below the December -$695 -$454 $5,000 2019 estimate, and about $600 million below the current FY21 budget level $4,000 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22  Pessimistic Scenario Source: June 2020 Consensus Revenue Estimate Prolonged recession causes longer hit to production,  Optimistic Pessimistic Revenue Scenarios, Difference employment, income, and gross receipts from Baseline Forecast FY20 FY21 FY22 FY20 FY21 FY22 Severance Taxes $0 $111 $119 ‐$2 ‐$110 ‐$146  Potential for second wave of infections Federal Mineral Leasing $12 $147 $281 ‐$8 ‐$115 ‐$174  Another collapse in oil prices; even greater declines Gross Receipts Taxes $39 $124 $187 ‐$37 ‐$149 ‐$256 in drilling activity Income Taxes $46 $164 $220 ‐$2 ‐$52 ‐$94 Other Revenues $71 $44 $44 ‐$28 ‐$28 ‐$24 FY21 and FY22 revenues could below be $2.4 billion  Total Difference from Baseline $168 $590 $850 ‐$78 ‐$454 ‐$695 below the December 2019 estimate Difference from Dec 2019 est. ‐$271 ‐$1,389 ‐$930 ‐$517 ‐$2,433 ‐$2,475 Note: dollars in millions 3

June 10, 2020 MEMORANDUM TO: Senator John Arthur Smith, Chair, Legislative Finance Committee Representative Patricia Lundstrom, Vice Chair, Legislative Finance Committee FROM: Staff Economists of the Legislative Finance Committee, Taxation and Revenue Department, Department of Finance and Administration, and Department of Transportation THRU: Acting Secretary Deborah Romero, Department of Finance and Administration Secretary Stephanie Schardin Clarke, Taxation and Revenue Department Director David Abbey, Legislative Finance Committee CC: Members of the Legislative Finance Committee SUBJECT: Consensus Revenue Estimating Group – June 2020 Special Session Revenue Update Governor Michelle Lujan Grisham has called a special legislative session for June 18, 2020 to address the ongoing effects of the novel coronavirus that causes COVID-19. To assist lawmakers in this process, the Consensus Revenue Estimating Group (CREG) – comprised of economists from the Legislative Finance Committee (LFC), the Department of Finance and Administration (DFA), the Taxation and Revenue Department (TRD), and the Department of Transportation (DOT) – reviewed the expected fiscal and economic impacts of this public health crisis and measures taken to contain the spread of the virus, as well as changes in global energy markets. This memorandum summarizes the work and conclusions of the CREG and contains an updated consensus revenue forecast for fiscal years 2020 through 2022. However, there remains considerable uncertainty surrounding the potential outcomes for employment and various tax and revenue collections. In the following week, state economists will receive a report of collections of income and gross receipts taxes for the month of April 2020. Because April was the first full month of closures for non-essential businesses, this data may provide additional insight on the depth of the revenue decline for FY20. As such, the CREG may provide an update to FY20 revenues in a subsequent memo prior to the start of the 2020 special legislative session. June 2020 Consensus General Fund Recurring Revenue Outlook (in millions) FY20 FY21 FY22 December 2019 Consensus 1 $7,776.4 $7,870.5 $7,925.6 June 2020 Adjustments ($439.0) ($1,979.0) ($1,705.0) June 2020 Consensus $7,337.5 $5,891.5 $6,220.5 Change from Prior Year -8.4% -19.7% 5.6% Based on the June 2020 forecast update, spending adjustments or reserve authorization will be required in the upcoming special session to balance the FY20 budget. In FY21, without any changes, general fund revenues and reserves would be insufficient to meet recurring appropriations, with general fund ending balances projected to be negative 8.8 percent at the end of FY21. Absent any changes, “new money,” defined as projected recurring revenues for FY22 less FY21 recurring appropriations, is estimated at negative $1.4 billion for FY22. While this forecast weighs all currently available information, the actual outcomes for the state’s finances will depend on a variety of factors: the epidemiological path of the virus, the strategies for reopening the New Mexico 1 December 2019 consensus estimate adjusted for 2020 legislation 4