New Mexico lawmakers are considering changes to capital financing programs as unused funds allocated to projects from state appropriations or raised through bond issues are at historically high levels due to rising construction costs and a shortage of construction workers. .
The state Legislative Finance Committee this week reported an estimated $5 billion in outstanding capital outlay balances across nearly 4,900 projects through the end of the first quarter of fiscal year 2024, Sept. 30.
It includes unspent funds from state appropriations or funds raised through the issuance of severance tax bonds, which are backed by liens on oil and gas production tax revenues.
A truck passes a horizontal drilling rig in Lee County, New Mexico. Taxes on oil and gas extraction fall back on state severance bonds.
According to Kelly Carswell, the legislature’s capital outlay analyst, the historically large backlog is being caused by rising construction costs and a shortage of qualified construction workers.
“You are likely to receive several billion dollars in new capital outlay requests for the 2024 season in a construction market that is not already saturated, where it is difficult to start new things or expand some of the projects we already have in the pipeline. It is also difficult to accomplish,” she told MPs on Tuesday.
He said the situation “underscores the need for serious project vetting for effective prioritization of requests and appropriations and better coordination of capital outlays with other funding sources.”
State Representative Tara Lujan expressed interest in making the change.
“If we already have our workforce capacity for these projects that probably aren’t going to be completed for many years, we really need to restructure it and completely reform it,” he said.
Meanwhile, the committee is awaiting responses to a survey next week asking local governments to report projects that have been delayed or halted due to cost overruns, which aims to provide such information. allowing the legislature to prioritize completion of existing projects before funding. A new one.
Carswell also warned that full use of severance bond debt capacity could jeopardize New Mexico’s bond rating and suggested that limiting annual bond capacity to a lower level would generate savings that could be made permanent through new capital reserves or a severance tax. Can be directed into the fund.
The current long-term debt capacity is 86.2% based on projections of 10 years of revenues, 10 years of credit at current interest rates and other factors. At the end of fiscal year 2022, New Mexico had $1.11 billion of severance tax bonds outstanding, which were rated Aa2 by Moody’s Investors Service and AA-minus by S&P Global Ratings.
Future reductions in volatile oil and gas tax revenues are also a concern.
“The decline in severance tax revenues will make it difficult for the state to finance new capital projects and maintain the investments being made today,” the Legislative Finance Committee report said. “This challenge will weigh heavily on the General Fund as it becomes a replacement source of capital at a time when General Fund revenues are already facing headwinds from declining oil and gas production.”
Oil production in New Mexico reached a projected record high of 658.7 million barrels in fiscal year 2023, according to the state’s August revenue forecast, with lower production growth projected in fiscal years 2024 and 2025.
The state has taken steps to protect its general fund from fossil fuel-related revenue fluctuations. senate bill 26Which was signed into law in March by Democratic Governor Michelle Lujan Grisham, caps net oil and gas emergency school tax and federal mineral lease revenues allocated to the general fund at fiscal 2024 levels beginning in fiscal year 2025. I went. Revenues above the threshold but below the five-year moving average will be transferred to the Severance Tax Permanent Fund.