Salaries of New Mexico state workers and educators would be reduced by 2 percent next year under a budget proposal that also could require $200 million in tax increases or further spending cuts.
The Legislative Finance Committee recommended Monday the state spend about $5.4 billion next year on public schools, higher education and government programs ranging from prisons to health care for the needy.
Those expenditures would be covered by state revenue and $118 million in federal economic stimulus aid.
The proposal represents a reduction of almost 5 percent, or $278 million, from the state and federal money being spent in the current fiscal year ending in June.
The recommendations are meant to serve as a starting point for lawmakers as they put together next year's budget in the 30-day legislative session starting Jan. 19.
In a departure from its traditional practice, the committee left undecided how lawmakers should balance the proposed budget. The committee's recommended spending is about $200 million higher than the revenue forecast for next year.
The deficit could be closed with tax increase or additional spending cuts. In addition, the state might get extra federal aid next year.
Health care legislation pending in Congress could provide New Mexico with more than $80 million for Medicaid, which provides medical services to the poor, disabled and uninsured children.
The $200 million hole in the spending plan underscores the divisions in the Legislature over whether the budget should be balanced with tax increases, deeper spending cuts or a combination of those options.
Democratic Gov. Bill Richardson has said he will support a temporary tax increase to help solve next year's budget problems.
"I would think there are some taxes that will be seriously considered," said Rep. Luciano "Lucky" Varela, a Santa Fe Democrat and committee chairman.
Another committee member, Sen. Sue Wilson Beffort, an Albuquerque Republican, said more cuts should be made before taxes are raised.
"I think responsibly we need need to look first at the size of our government and how it's grown," Beffort said.
State spending has increased by 35 percent since 2003, even after budget cuts during the past two years.
In the current budget proposal, the committee recommended a 2 percent cut in money allocated for salaries of public employees, including school teachers and college faculty. That would save $76 million next year. Agencies could handle the reductions in different ways, including unpaid furlough for workers.
For public schools, it's possible the 2 percent reductions could be implemented by eliminating three paid professional development days for staff. Those are days when students don't attend classes. The move would leave intact the 180-day school year for students.
New Mexico, like other states, has been forced to roll back spending as tax revenue dropped because of the recession. New Mexico also has lost revenue from oil and natural gas production because of lower energy prices.
To help balance this year's budget, about $400 million in federal economic stimulus aid has been used to replace state revenue for education and health care.
However, part of the federal money will lapse in the coming year, and that will force lawmakers to cut state spending unless they approve tax or fee increases or Congress offers extra federal aid to financially strapped states.