New Mexico state spending plan seeks more federal Medicaid dollars as Donald Trump takes office

SANTA FE, N.M. -- Leading New Mexico legislators on Wednesday recommended a 5.7% general fund spending increase for the coming fiscal year that emphasizes health care access, public school improvements, and early education and childcare programs that can boost household finances.

The lead budget writing committee to the Democratic-led Legislature proposed a $577 million increase to $10.8 billion for the fiscal year running from July 2025 to June 2026. A windfall in government income from petroleum production is slowing down though far from over in New Mexico, the nation’s No. 2 oil-producing state.

Democratic Senate Majority Leader Peter Wirth of Santa Fe said the spending plan leaves room for a separate proposal to create a $1 billion endowment and use investment earnings to expand mental health and addiction treatment services. That comes amid a proliferation of homeless encampments in cities large and small and related concerns about public safety. New Mexico Gov. Michelle Lujan Grisham has set crime and homelessness as a central focus for of the 60-day legislative session that begins Tuesday.

Democratic state House Speaker Javier Martínez of Albuquerque said the Legislature's new spending pitch "is about making life more affordable for New Mexico families.”

“This budget is not just about making our communities safer, this budget is about building more access to health care, including behavioral health and drug addiction treatment," he said.

Combined state and federal spending on health care in New Mexico — principally Medicaid — would increase by $3.3 billion to $15.5 billion, a 27% jump. New Mexico is using a new assessment on hospitals to harness more federal Medicaid dollars for the health care sector.

Democratic state Sen. George Muñoz of Gallup said New Mexico is well positioned financially if the federal government were to reduce Medicaid allowances after President-elect Donald Trump takes office next week.

“It’s the No. 1 issue across states for everybody — Medicaid,” said Muñoz, the lead Senate budget negotiator. “We can react to that if it does happen. ... We have the ability, we have the money to react.”

Spending on K-12 public education would increase by $263 million, or 6%, to $4.7 billion. Additionally, the proposal sets aside $150 million for pilot programs to improve literacy, elementary school math proficiency and lagging attendance rates.

Distributions from New Mexico's early childhood education trust — an endowment built on a windfall in state income from oil production — would increase by $290 million, or nearly 9%, to $854 million to expand childcare and related medical assistance.

New Mexico Gov. Michelle Lujan Grisham is advocating for a slightly larger, 7% annual general fund spending increase. The Legislature develops its own competing spending plan, and Lujan Grisham can veto any and all provisions approved by legislators.

The Legislature's budget recommendation includes an average 4% pay increase for public employees across state government, public schools and colleges.

The budget proposals do not outline possible tax cuts or incentives. Republicans in the state House minority are advocating to eliminate personal income taxes that peak at 5.9% for top earners.