If Congress ultimately passes a budget that looks like the resolution the House of Representatives passed last week, the impact of federal funding cuts in New Mexico would be deep, especially affecting Medicaid.
In a presentation to the Senate Finance Committee Monday Ismael Torres, chief economist at the Legislative Finance Committee, outlined a preliminary estimate of how calls for $2 trillion in cuts to federal funding could hit New Mexico.
He emphasized that the Senate is likely to make changes to the budget resolution passed by the House, and that the estimates in his report are just that. However, the draft budget contains cuts of hundreds of billions of dollars from the Education and Workforce Committee, which funds schools and child nutrition, and from the Agriculture Committee which funds SNAP, or food stamps, and farm subsidies.
Based on estimates of how much each program could be cut, and applying that ratio to state funding, Torres said New Mexico could lose up to $257 million annually in SNAP funding, and $72.9 million in school meal costs.
But most significantly for the state, last week's federal budget resolution calls for $880 billion in cuts over ten years by the Committee on Energy and Commerce, which oversees Medicaid and Medicare. House Speaker Mike Johnson indicated in January that Medicare is off-limits, so analysts expect the deepest cuts to hit Medicaid as the Trump administration prioritizes tax cuts and border security.
The costs of Medicaid are shared between the federal government and states. According to KFF, a nonpartisan health research institute, in fiscal year 2023 the federal government paid $606 billion (69%) and states paid $274 million (31%). But the ratio varies by state according to per capita income, and New Mexico had the nation's highest proportion of federal dollars spent on Medicaid, at 83%.
Torres told the committee that if there were federal cuts of 12 to 13%, that would amount to a reduction of more than $1.1 billion in funding to the state annually.
"It is pretty draconian, what we're hearing," said Senator Jeff Steinborn (D-Doña Ana).
A study by the McCourt School of Public Policy found that New Mexico has the nation's highest percentage of children who rely on Medicaid in rural areas. In small towns and rural areas, 60% of children are covered by Medicaid or the related Children's Health Insurance Program. In McKinley County, that rises to 73%, the highest in the country.
Federal lawmakers last week told reporters the impact on many New Mexicans would be devastating. “This is not a Republican or a Democrat issue,” said Democratic U.S. Rep. Teresa Leger Fernández. “It is an issue of keeping our population safe and doing it in an incredibly cost effective manner.”
Chair of the Senate Finance Committee, Senator George Muñoz (D-Gallup), expressed skepticism in the Monday meeting that Medicaid would be cut as much as predicted, based on his attendance of a meeting of chairs of state finance committees across the country.
"I think at the end of the day, I don't think they're going to get there, because the states will have way too much pushback," he said.
However, he did say that the legislature should be planning for a drop in federal funding now. At a recent press conference by House Democrats, Rep. Nathan Small (D-Doña Ana) called $3 billion left in reserves "our first line of defense to make sure that New Mexico is the best prepared financially, particularly when it comes to federal chaos.”
But Muñoz said he wanted to see plans for cuts to state agencies, to avoid too much reliance on reserves.
"It's going to be a mix of backfilling and tightening," he said.
Torres, the economist, echoed the sentiment, saying that reserves were likely to be the first step in filling funding shortfalls.
"You want to give yourselves as a body enough time to think strategically about how to achieve those savings. And so the reserves buy you that time," he said. "While you can debate and your staff can help you identify where savings could be achieved with hopefully the smallest impact to services."
Gov. Michelle Lujan Grisham told a business group in Albuquerque last week that a special session is likely later this year, after the federal budget passes, "just to deal with health care and to keep our rural hospitals open."
The scale of the potential impact of cuts was underscored by the testimony of several agency heads at Monday's meeting.
Among them were Transportation Secretary Ricky Serna who said that climate change and carbon reduction programs could be affected, and Secretary-Designate for the Department of Health Gina DeBlassie who said that of her department's $266 million budget, about $187 million does not come from the state's general fund; most of that is federal funding.
In addition to the direct impact of federal funding cuts, Torres outlined the potential impact on New Mexico's revenues of federal policies, including the impact of further job losses at federal agencies. He said the state has the sixth highest concentration of federal employment nationally, with about 29,600 direct federal government jobs and about 32,000 contractors at the national laboratories.
