New Mexico’s December consensus revenue forecast shows slower growth, oil price drop trims windfall transfers

Secretary Stephanie Chardon Clark, secretary of the Taxation and Revenue Department, told the Legislative Appropriations & Finance Committee on Jan. 8 that the December general fund consensus revenue estimate is the basis for the FY26 budget and shows slower but positive growth.

The nut graf: The consensus group — economists from the Department of Finance and Administration (DFA), Taxation and Revenue, Department of Transportation and the Legislative Finance Committee (LFC) — revised down oil price expectations and trimmed the immediate “windfall” available to the general fund. That combination lowers the pool of truly new recurring money for FY26 to about $892.3 million while leaving roughly $2.5 billion in one-time, nonrecurring revenue available for appropriation, officials said.

Most important facts first: Clark said the December forecast “is probably the most important because it is the one that the budget is sized off of.” The forecast assumes moderate national growth (U.S. real GDP of about 2.2% in calendar 2025 and 2.0% in 2026) and a return of inflation toward the Fed’s 2% target in 2025. The forecast does not assume a recession in the out years.

Energy and production: Officials signaled a complex energy picture. DFA’s chief economist and LFC economists described a roughly $6 per barrel downward revision to the oil-price assumption for FY25, and they used a rule of thumb that each $1 change in oil price shifts New Mexico revenue by about $50 million. Secretary Chardon Clark noted New Mexico reached record production in FY24 (about 710,000,000 barrels in the year as presented to the committee) and that rig counts remain above 100. Analysts said production growth and price moves have different budget impacts: production drives severance and royalty revenues, rig and related activity influence gross receipts tax (GRT), and price changes affect both.

Insulating the budget: Panelists described statutory changes that direct large, volatile energy windfalls into permanent funds and trusts rather than the general fund. Clark said the oil‑and‑gas school tax going to the general fund is capped at the FY24 level (presented as $1,145,000,000 in testimony) and excess amounts are routed to the Severance Tax Permanent Fund, the Early Childhood Education Trust Fund and a Tax Stabilization Reserve. DFA Secretary Wayne Probst said those reforms have reduced general fund volatility and that investment income from permanent funds is becoming an increasingly important, less-volatile revenue source.

Revenue detail: The forecast raised the GRT outlook modestly (an increase of roughly $73 million in the current forecast versus August) based on stronger-than-expected activity in construction and other sectors. The personal income tax (PIT) line showed a mechanical decline in FY24 and FY25 due largely to recent tax law changes, including the child income tax credit and PIT bracket shifts; those are policy-driven declines rather than an underlying weakness in the income base, Clark said. Withholding activity — a leading indicator — showed continued year-over-year strength for FY25’s first month of data.

Stress tests and reserves: LFC and DFA staff presented stress tests that model upside, moderate recession and low-oil-price scenarios. Ismael Torres, chief economist at the LFC, said even the worst-case scenarios tested do not force cuts to recurring appropriations; instead, they would require reductions in nonrecurring spending. LFC staff recommended reserves large enough to cover modeled shortfalls (a cited stress-test gap of roughly $2.1 billion across modeled years). Secretary Probst emphasized preserving reforms to pensions and trust uses as actions within state control that rating agencies watch.

Sources and limits: Presenters rely on Moody’s, S&P Global, UNM’s Bureau of Business and Economic Research and private consultants (Rystad Energy for production characterizations). Officials repeatedly cautioned that global supply and demand (including OPEC decisions) and pipeline constraints for natural gas are outside state control and can move prices and receipts rapidly.

Questions from committee members covered policy choices that affect revenue accounting (for example, shifting pass-through entity tax accounting between PIT and corporate income tax), the GROW fund, film tax credits, Social Security exemptions and long-term transitions away from fossil-fuel reliance. Panelists said film tax credits and corporate tax base volatility deserve monitoring because large uncapped partner agreements can create risk to the corporate income tax base that funds the general fund.

Ending note: Committee members were urged to weigh recurring versus nonrecurring decisions carefully because recurring commitments reduce future “new money.” Officials recommended keeping reserves and continuing statutory protections that route volatile oil income into long-term funds.