New Mexico’s $11.1B Budget: Tax Package, Capital Outlay, and Vetoes

New Mexico’s fiscal year 2027 budget is an $11.1 billion general fund spending plan that Governor Michelle Lujan Grisham signed on March 11, 2026, alongside more than $1.5 billion in capital outlay and a roughly $120 million tax package.¹ Spending is up 3.1 percent ($339.5 million) over FY 2026, a slower pace than in recent years, and reflects a state trying to expand education and healthcare while cushioning itself against oil-price swings and federal cost-shifting.²

The governor’s December 2025 recommendation had come in higher at $11.3 billion, but lawmakers pulled it back over concerns about oil volatility and federal policy changes.³²⁴

Where the Money Goes

Higher Education

Higher education draws $1.5 billion, a 15.4 percent increase. The state’s tuition-free Opportunity Scholarship gets $186 million, campus infrastructure statewide gets $185 million, and the Lottery Tuition Fund gets a $37 million increase. A health professional loan repayment program is funded at $25 million, teacher loan repayment at $5 million, and teacher preparation affordability scholarships at $2.5 million.⁵

Early Childhood and K–12

The universal child care program that launched on November 1, 2025, and eliminated income limits and copays for families, receives $160 million for its first full fiscal year.¹⁶ For K–12, the executive recommendation carried $42.2 million for universal school meals, $38.5 million for career technical education, and $30 million for reading intervention.⁷ The enacted budget also puts $73.2 million toward raising the state’s share of health insurance premiums for public school employees and $45.4 million toward premium increases themselves.²

Healthcare and Medicaid

The Health Care Authority gets a $23.6 million increase for mental health and substance-use treatment through Medicaid managed care, $15 million more for the Developmental Disabilities Support Program, and $9 million to raise nursing facility rates. Behavioral health additions include $4.5 million for the 988 Suicide and Crisis Lifeline and $5 million for the Linkages program, which provides permanent supportive housing for adults with serious mental illness.⁸

A large share of the healthcare money is defensive. A reduction in New Mexico’s Federal Medical Assistance Percentage forced the state to add $9.7 million just to keep Medicaid coverage steady.²⁸

Public Safety, Courts, and Corrections

The executive recommendation set the Department of Corrections at $368 million (a 4.1 percent increase), the Department of Public Safety at $213.7 million (a 6.9 percent increase), district attorneys at $125.1 million, and the public defender’s office at $85.8 million. The judiciary received $496.9 million, including funding for two new district court judges and up to 11 new prosecuting attorneys.⁹¹⁰¹

Water and Roads

Water security is a recurring priority in a state that faces long-term supply constraints. The governor’s executive recommendation carried $65 million for the Strategic Water Supply Fund, $35 million for Indian water rights settlements, and $22 million for aquifer monitoring and mapping. Road construction and maintenance received $100 million in nonrecurring funds.⁷⁹

The $120 Million Tax Package

Senate Bill 151, signed the same day as the budget, is a roughly $120 million tax package.¹¹ The governor’s office emphasized that it does not raise taxes on New Mexico families.¹ Key provisions:

$63 million for a 1 percent pay increase for state workers, including public school teachers and higher education employees.
A $10,000 income tax deduction for physicians, aimed at recruitment and retention.
A new gross receipts tax deduction for construction of affordable multifamily housing.
Income tax credits for local news publications and employers of local journalists.
An extension of the high wage jobs tax credit.
Decoupling from certain new federal corporate tax deductions on foreign-source income, which generates revenue to offset the credits.¹¹

The most unusual feature is that state employee pay raises ended up inside a tax bill at all. The Senate Finance Committee stripped the raises from HB 2, the main budget bill, and the House Taxation and Revenue Committee then inserted them into SB 151 to avoid a late-session standoff. Committee Chair Derrick Lente called the maneuver “quite unorthodox” but necessary. The trade-off was the loss of a proposed expansion of the Working Families Tax Credit, which Lente said he intends to reintroduce in a future session. Whitney Holland, president of AFT New Mexico, called the raises a “win” while noting that public employees continue to face rising costs.¹¹

Capital Outlay: $1.5 Billion in Projects

Two separate bills carry the infrastructure package: SB 240 (capital outlay) and HB 248 (general obligation bonds), together authorizing more than $1.5 billion in projects.¹ The largest single item is $546 million for a new University of New Mexico School of Medicine, part of which requires voter approval.⁵ Other highlighted allocations:

$75 million for a behavioral health institute in Las Vegas, NM
$20 million for state parks
$20 million for public safety facilities
$17.6 million for a reforestation center in Mora County
$10 million for a homeland security emergency operations center
$10 million for a child care facility revolving loan fund

The package also transfers $100 million to the Water Project Fund and $50 million each to the Behavioral Health Trust Fund and the Government Results and Opportunity Program Fund.²

Votes and Vetoes

The General Appropriation Act (HB 2) passed the House 55–15 and the Senate 23–16.¹²¹⁰¹³

Where the Money Comes From

The December 2025 consensus revenue estimate that lawmakers used projected $13.9 billion in recurring general fund revenue for FY 2027, roughly 4 percent growth, and assumed oil at $57.50 per barrel with production of 840 million barrels.⁴¹¹⁴

Oil and gas dominate the revenue base. The industry accounted for 26.9 percent of all state and local revenue and 56.1 percent of state and local own-source tax revenue in FY 2023, and roughly one-third of the gross receipts tax base is tied to the sector.¹⁵⁴ New Mexico ranks fourth among all states for tax revenue volatility.¹⁶ LFC stress testing suggests a sustained low-price scenario could open a $675 million shortfall in FY 2027 revenues compared with the baseline.

To offset that exposure, the state routes roughly half of its oil and gas revenues into permanent funds, chiefly the Land Grant Permanent Fund, which was projected to distribute $1.34 billion to beneficiaries in FY 2024.¹⁷ Investment income from these funds is projected to surpass income taxes as the second-largest general fund revenue source.⁴ The Early Childhood Education and Care Fund alone has grown to approximately $11 billion and distributes at least $500 million a year for child care programs.¹⁸

An $850 Million Mid-Year Windfall

The budget’s oil price assumptions were overtaken by events within months. By June 2026, rising prices attributed to the war in Iran had pushed the projected annual average from $58 to $73 per barrel. LFC Chief Economist Ismael Torres estimated the state would collect an additional $850 million in the fiscal year ending June 30, 2026, above what the budget had assumed. Each $1 increase in the annual average oil price generates roughly $57 million in additional state revenue.¹⁹

That windfall is being directed to the Early Childhood Trust Fund, the Medicaid Trust Fund, and the Behavioral Health Trust Fund, not to the operating budget.²⁰¹⁹

Longer-Term Risks

The LFC’s December 2025 forecast warned of a “narrowing pathway to avoiding a recession” and estimated that federal policy changes alone could cost the state $274 million in FY 2027 revenue.⁴ The federal One Big Beautiful Bill Act also reduces federal royalty rates on oil and gas leases from 16.67 percent to 12.5 percent, with projected state revenue losses of $1.7 billion between 2026 and 2035.¹⁵ A 2023 PFM analysis estimated that current revenue forecasts may overstate aggregate revenues by $26 billion to $36 billion over 15 years, partly because New Mexico oil production could peak as soon as 2028; the state’s own Consensus Revenue Estimating Group projects oil and gas will decline to 10 percent of general fund revenue by 2050.¹⁶ A $150 million quantum technology initiative in the FY 2027 budget, including a quantum startup lab in downtown Albuquerque tied to Sandia and Los Alamos national laboratories, is one attempt at diversification.²¹

1
Office of the Governor of New Mexico. Governor Signs State Budget, Capital Outlay Bills, and Tax Package
2
New Mexico Department of Finance and Administration. FY27 Budget Overview Executive Summary
3
Source NM. New Mexico Gov. Lujan Grisham Signs $11.1B State Budget
4
New Mexico Legislature, Legislative Finance Committee. FY27 and FY28 General Fund Revenue Projections
5
New Mexico Higher Education Department. Gov. Lujan Grisham Approves Record $1.5B for Higher Education
6
New Mexico Early Childhood Education and Care Department. Universal Child Care
7
Office of the Governor of New Mexico. Governor Releases FY27 Executive Budget Recommendation
8
New Mexico Department of Finance and Administration. FY27 Budget Overview Complete Report
9
New Mexico Department of Finance and Administration. FY27 Executive Recommendation Budget in Brief
10
KOAT. New Mexico Gov. Signs 72 New Laws, Vetoes Two Bills in Final Legislative Session
11
Source NM. NM Gov. Lujan Grisham Enacts Tax Package Including Unusual 1% Pay Raises for State Employees
12
New Mexico Legislature. HB 2 Legislation Detail
13
New Mexico Secretary of State. 2026 Legislation
14
Source NM. State Lawmakers and Budget Experts Float Lowering Savings Targets
15
Resources for the Future. Save It or Spend It: How New Mexico, Pennsylvania, and Texas Manage Oil and Gas Revenues for the Future
16
PFM Group. PFM New Mexico Final Report
17
New Mexico State Investment Council. Land Grant Permanent Fund
18
Pew Research. Are State Trust Funds an Answer to Rising Child Care Costs
19
Source NM. NM Revenue Increases $850M Due to Iran War, State Economist Estimates
20
KRQE. New Mexico Projects $850 Million Revenue Increase From High Oil Prices
21
StateScoop. Inside New Mexico’s Push to Build a Quantum Startup Hub