New Mexico Defaults?

Is a Non-appropriation the same as a default?

The State of New Mexico may be the first of the states to “non-appropriate” funds for various existing contracts.  What is a non-appropriation?  A non-appropriation is when a government decides to cancel a contract early because it does not have the money in the budget to complete its original obligation under the contract.  So, in essence, it defaults on the original payment terms with no penalty.  The business affected has to try to make-up for the revenue shortfall buy cutting its business and on and on down the line.

In accordance with House Executive Measure No. 5, The State of New Mexico notified vendors across the country of its intent to break these contracts early.  While not illegal to do so the impact on financial institutions and businesses of all sizes will be felt, especially if other states follow suit.

One department saw its budget cut by over $10,000,000 primarily in the administrative part of the budget.  That means contracts get terminated and deals get changed in an effort to save the state money.

So, is Governor Richardson a hero or a goat for closing offices and terminating contracts early?  I guess it’s up to the public to decide.  Will the non-appropriations add to the state’s cost of financing going forward, maybe.

Remember when banks were a safe and sound and a state contract was a good thing?

This recession is not over yet folks!

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avatar Posted by on Apr 6 2010 Filed under Economics. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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