Revenue forecast shows slower growth but large reserves; federal changes, oil prices cloud outlook

State finance officials and legislative economists presented an updated consensus revenue forecast in Las Cruces that lowers near‑term growth expectations but leaves the state with unusually large reserves. At a Legislative Finance Committee briefing, chief economist Ismael Torres of the committee said the update shows “less. Less new money, less growth,” summarizing a mix of upward revisions to the just‑ended fiscal year and slower growth in the budget and out years. That message framed detailed staff projections for gross receipts tax, oil and gas royalties and production, personal and corporate income taxes, and stress‑test scenarios. Why it matters: officials and economists said the state’s fiscal position remains strong despite a weaker price outlook for oil, in part because recent legislation and administrative choices have insulated the general fund and because investment income has been unusually high. Those cushions reduce the immediate budgetary hit from commodity price swings and federal tax changes, but officials warned about substantial uncertainty. Forecast highlights and key figures: staff reported a $76 million upward revision to gross receipts tax (GRT) receipts for FY 2025 but slower GRT growth thereafter (3.8% in FY 2026, 2.7% in FY 2027). Oil price assumptions were revised downward by roughly $7.50–$9.50 a barrel for FY 2026–27 compared with the prior forecast, while projected New Mexico oil production was revised up (staff estimated a record FY 2025 production of about 775 million barrels). Natural gas production was forecast at about 3,915 billion cubic feet in FY 2025 at roughly $3.31 per Mcf. Staff presented a rule‑of‑thumb that the state loses roughly $57 million of revenue per $1 change in the oil price. Federal policy and royalties: presenters incorporated the expected effects of recent federal tax legislation (referred to in the briefing as H.R. 1) and the Federal Royalty Resiliency Act of 2024. Officials said conforming to H.R. 1 will reduce state revenue in several areas (federal standard deduction changes and other provisions were estimated to lower state receipts), and they estimated a potential annual loss to state royalties of about $170 million (about $1.7 billion over 10 years) because the federal bill reduced the effective royalty rate to 12.5% again. Staff also reported the federal royalty reconciliations under the RRA have revealed overpayments to New Mexico and that a clawback of roughly $150 million—representing over‑distributions between September 2024 and May 2025—was included in the August forecast; officials said they do not yet know the exact payment month. Reserves and “new money”: Wayne Props, Secretary with the Department of Finance and Administration, told the committee the state’s fiscal position “remains strong. It remains stable. It remains resilient with multiple protective layers of cushions.” Staff projected FY 2025 general‑fund reserves at about $3.47 billion (roughly 34% of recurring appropriations) and FY 2026 reserves at roughly $4.0 billion (about 36.4%). For the upcoming budget year (FY 2027) staff reported roughly $485 million of total new money (total revenues minus total appropriations) available for lawmakers to consider; that total‑new‑money figure is smaller than last year’s. Stress tests and risks: staff walked the committee through downside scenarios, including a low‑oil‑price stress case. Presenters said the state would still be able to cover major recurring obligations in those stress scenarios but that available nonrecurring funds would fall—illustrating why officials continue to emphasize strong reserves. Chief economist Torres and DFA staff listed a range of upside and downside risks: global trade and tariff developments, uncertainty about the economic effects of federal tax changes, potential changes in Russian oil supply, and mixed signals in national employment data. Torres called the overall outlook “mixed” and said uncertainty has grown because many effects of federal policy changes are still being analyzed. Implications for programs and policy: presenters recommended continuing to treat reserves and trust funds cautiously. Secretary Props said the executive supports maintaining reserves of 30% or higher and suggested prioritizing funds for Medicaid and behavioral‑health trust funds as near‑term uses of nonrecurring money. Committee members asked staff about the timetable for special sessions and for validating federal data; presenters encouraged careful timing and said updated dashboards and federal reconciliation work are ongoing. Quotes from presenters are limited to those listed in the committee transcript and attributed below. The presentation materials and county dashboards are available from LFC and DFA staff for members and staff who asked to dig deeper. The committee did not take formal votes at the meeting; presenters offered the updated consensus forecast and staff analysis for the legislature’s use in upcoming budget deliberations.