DALLAS – New Mexico's adjustment to cover a $69 million shortfall in the current budget is negative for school districts, according to Moody's Investors Service.
Gov. Susana Martinez on Jan. 31 signed Senate Bill 114 that calls for a non-recurring sweep of $46.1 million in operating cash balances, or an effective 2% reduction in state aid to school districts. The bill is part of a $190 million solvency plan to improve the state's general fund.
"This strategic reduction to excess cash balances gets our state closer to the fiscal stability it needs, while preserving classroom dollars," Martinez said in a signing statement. "And while a two-percent cut may pose a challenge, our districts have the means."
Albuquerque Public Schools' $12 million reduction still leaves the district with more than $42 million in cash balances, more than enough to continue to provide services to their students without shutdowns, layoffs, or a lapse in classroom support, Martinez said, citing one example.
Gallup-McKinley County Schools' cash balance remains at more than 17.7% of their entire program cost, even with a nearly $1.7 million cut, Martinez said.
"The cash balance sweep and October cuts are credit negative and affect all New Mexico's school districts, weakening already-limited financial positions," Moody's analysts said. "Based on our estimates, net of the cut and sweep, 10 districts will have less than 2% of revenues in reserve."
"New Mexico school districts are not well positioned to weather funding declines, with virtually no revenue-raising capacity and limited expenditure flexibility on an intra-year basis," Moody's wrote. "Furthermore, with the state willing to recapture excess cash reserves to balance its own budget, districts are not incentivized to rebuild their reserve positions in event of future sweeps or cuts, especially in light of another sizable deficit projected for fiscal 2018."
Moody's downgraded New Mexico to Aa1 from Aaa in October and retains a negative outlook.
Two weeks later, S&P Global Ratings downgraded New Mexico to AA from AA-plus and also retained a negative outlook.
