Exceptions to Anti-Indemnification Act May Spell Increase in Construction Costs
August 7, 2018
January 28, 2019


Article By: Ann Maloney Conway

“All Calculations Based on Experience Elsewhere, Fail in New Mexico.” – Lewis Wallace, Territorial Governor of New Mexico (1878-1881) and author of Ben Hur

We all have chuckled over Gov. Wallace’s words of wisdom because we know them to be true. Therefore, while I must avoid calculations based on experience, I hope to provide some insight into what issues we can expect to see in the 2019 sixty-day legislative session. Much will depend on the outcome of the elections on November 6th but, whatever the outcome, it promises to be a very interesting session.

New Mexico will have a new governor for the first time in 8 years and a significant number of new representatives in the House. The new governor and the legislature will inherit an almost unprecedented improvement in state revenue and reserve levels for state government operations and capital outlay projects.  After a period of years characterized by fiscal instability and low revenues and reserves, the prospect for increased funding for education, social programs, and many aspects of state government is finally a reality. In addition, new money available for capital outlay projects around the state will translate into a significant increase in construction projects for roads, public buildings, and other infrastructure needs.

This fortuitous change is due primarily to rapidly growing oil and gas production in New Mexico as well as rising oil prices. New Mexico produced more than 190 million barrels in FY18, triple the average for the last 3 years. The outlook for FY 20 is over 250 million barrels. New Mexico now ranks 3rd  in the nation in oil production annually. State revenue from oil and gas production, royalties and industry related gross receipts taxes are expected to range from $1.2 -$2 billion in new money for the general fund, and reserves growing to 35 %.

Therefore, much of the time during the session will be focused on how best to spend this increased revenue– a luxury the state has not had in several years. Although both gubernatorial candidates have differing views on a number of topics, both have suggested that public education and state infrastructure need immediate attention. Another pressing issue is the state employee and teacher pension systems which currently are fiscally unsustainable with respect to incurred long-term obligations to retirees.

Because of New Mexico’s historic dependence on oil and gas for its general fund revenue, it has one of the most volatile annual revenue streams in the nation. Both gubernatorial candidates and many legislators want to address other methods of tax reform and economic development to alleviate the cyclical uncertainties our dependence on oil and gas create. I anticipate there will be continued efforts to reform the state gross receipts tax system, which contains a myriad of exemptions and loopholes, and which creates a “pyramiding” effect on the taxation of many goods and services. The construction and professional services industries are particularly hard hit by the current gross receipts tax system and these costs are passed on to consumers. There will also be a continuing debate on other types of taxes; particularly personal income tax.

Economic development measures will also be debated during the session. The good news is that unemployment levels have been decreasing steadily since January 2017, and job growth is now nearing the pre-recession employment peak. Nevertheless, most policy makers agree that there is a need for greater diversification in the type of jobs and businesses New Mexico attracts over time. Yet, both gubernatorial candidates and many legislators disagree on how best to attract those jobs and businesses.

The economic development debate in turn becomes part of the tax debate, and the complex debate surrounding other independent but interrelated social services and business issues. The need for improved public education, vocational training and the high cost of maintaining numerous universities around the state will be a topic of legislative debate. Teacher salaries, training and accountability will continue to be issues. Likewise, early childhood learning and care programs, student literacy, and proficiency testing will be debated. Recently, a Santa Fe district court issued a decision requiring that lawmakers ensure at-risk public school students receive an adequate education. The effort to implement that decision likely will be a slow and difficult process.

As in previous years, there will be bills aimed at increasing employment-related benefits with requirements that employers should bear the cost of those benefits.  We can expect to see bills introduced to increase the state wide minimum wage, create state FMLA-like benefits for employees, and to require predictive scheduling, pregnancy leave, and other employment benefits. There will likely be legislation introduced relating to workers’ compensation benefits as well.

We also will be keeping an eye on bills relating to construction. Last year a bill was introduced to amend the New Mexico Construction Anti-Indemnity Act, which did not make it through, and we expect it to be introduced again. We also expect legislation on a variety of issues relating to public and private construction projects.

Finally, there will be plenty of bills that will come as a complete surprise. Our focus is always to determine how legislation will affect our clients, and to keep you informed and well-advised. Please let us know if we can be of assistance to you with any questions that arise during the process.