With nearly $5B unspent, legislative staff recommend tighter controls on large public projects – Source New Mexico

Billions in public funds meant to pay for new buildings, vehicles and equipment for local communities throughout New Mexico have not been spent, and legislative staff are recommending state officials create a new government office to help complete projects.

At the end of September, there was nearly $5 billion in unspent funds set aside for 4,900 projects funded by the state’s “capital outlay” program, state analyst Cally Carswell told the Legislative Finance Committee on Tuesday.

Lawmakers pass a capital outlay bill each year to pay for all or part of new infrastructure or construction — things like buildings, parks, roads or acequia upgrades.

There are 766 active projects, which lawmakers have given at least $1 million for fiscal year 2024, accounting for $3.6 billion in total, according to data produced by legislative staff.

Of those, 415 are on schedule, 170 are behind schedule, and 181 have had no activity, or the local governments responsible have not sold the bonds needed to raise the money, or are facing “significant obstacles to completion,” according to the report.

These include, for example, the relocation of the Guadalupe County Magistrate Court, a few senior center projects, numerous projects with the city of Santa Fe, money set aside for road construction and money for a therapeutic group home run by the New Mexico Children, Youth and Families Department.

Only 11 projects funded with more than $1 million have been completed or have been granted an extension, according to the LFC data. This includes the Vladem Contemporary Museum of Art in Santa Fe, upgrades to the Albuquerque Police Department evidence lab, a vehicle for the Albuquerque Fire Department, and upgrades to a building at Eastern New Mexico University.

Earlier in the year Carswell told lawmakers that construction costs are increasing, and contractors are having difficulty attracting and retaining qualified workers to meet demand for construction in the state.

In her update Tuesday, she said the situation remains the same.

Carswell said almost all of the 1,400 projects lawmakers approved in the last legislative session were funded with money out of the state’s General Fund, its biggest single pot of public money.

The source of the money matters because the law that authorizes spending requires each capital outlay project to spend at least 5% of the money within a year. When that doesn’t happen, the money gets pulled back into the General Fund, Carswell said.

Rep. Jack Chatfield (R-Mosquero) asked how paying for capital outlay projects using the General Fund rather than by selling bonds affects the state’s score from bond rating agencies.

It does not put the state in a bad position, Carswell said. 

But she cautioned that if state officials borrow too much money in order to pay for capital outlay projects, that could put them in a worse position with the rating agencies.

“It is an issue that they have already flagged to the Board of Finance as something that they are concerned about,” she said.

She suggested lawmakers change state law to lower the maximum amount of money they can borrow each year to pay for these projects.

Three key state agencies that manage most capital outlay money: the Department of Finance and Administration, the Indian Affairs Department, and the New Mexico Environment Department, she said, and each issued grant agreements for eligible projects.

Now, communities need to keep better track of signing those agreements and spending capital outlay money, Carswell said. Lawmakers can use the data about projects given at least $1 million to perhaps call those local governments and encourage them to get moving, she said.

The LFC expects lawmakers to have billions more in capital outlay requests during the 2024 session. If approved, those projects are likely to face a “construction market saturated if not oversaturated, where it’s difficult to start new things and complete those already in the pipeline,” Carswell said.

Anticipating higher costs, some state agencies and higher education institutions have already asked for more money on top of their original requests for next year. Carswell said this means local governments are already facing significant changes in the expected project costs over the summer and fall.

Local governments and others who have received these capital outlay funds have until Nov. 22 to provide information to state agencies about unexpectedly high costs for existing projects, she said.

The goal for these reports is to inform Legislative Finance Committee analysts about which projects are stalled, delayed or otherwise facing challenges due to cost increases. Carswell testified that the LFC expects to present the results of that survey to lawmakers in December.

And in 2025 and beyond, Carswell said she recommends lawmakers consider setting an earlier deadline for local capital outlay requests, and creating a basic method of vetting and tracking projects that get state money.

That could allow lawmakers to fund planning and design separately from construction, so that the larger amounts of money would be reserved for major construction projects with proper plans and that are ready to go, she said.

House Appropriations and Finance Committee Chair Rep. Nathan Small (D-Las Cruces) said lawmakers have asked Gov. Michelle Lujan Grisham’s administration to standardize its capital outlay requests, and that “there’s an openness from the executive to do that.”

Small said as oil production becomes increasingly uncertain in the future, the state’s entire system for funding capital outlay projects comes more into question, because any variation in that industry affects the entire program.

Small said he is reluctant to constrict too tightly the amount of money provided for capital projects.

”But clearly we need to establish other funding opportunities and other sources to support capital (outlay),” he said.