The first four months of 2022 brought record breaking oil and gas revenues to the State of New Mexico – some $1.7 billion.
Lea County’s oil fields, as well as those in other southeastern counties, all of which are part of the Delaware Basin, considered the most lucrative part of the larger Permian Basin, are major contributors to the state’s overflowing coffers.
According to an article published at PBS.org, New Mexico Tax and Revenue Department records show that, “… year-on-year, revenues from January through April [of 2022] more than doubled from $782 million in 2021 — itself a record year.”
The facts that the Permian Basin ranks first in US oil and gas production and arguably first in world production and that oil and gas prices have surged as a result of Russia’s invasion of the Ukraine are credited for the huge increase in revenue that the oil and gas industry is bringing to the state.
The figures published by the New Mexico Tax and Revenue Department do not include all revenue the state has received. For example, revenue from federal mineral leases is missing. However, these figures “… reflect how much is coming in,” states Jerry Redfern in a recent article posted at CapitalAndMain.com. “The total is calculated during the state’s fiscal year, which runs from July 1 to June 30 of the following year.”
Not until later this year will the Tax and Revenue Department release total figures for the 2022 fiscal year. Production records tend to lag for at least two months. The one thing that is known, however, is that figures already released are almost double those of the 2021 fiscal year – $3.6 billion in 2022 compared to $2 billion 2021.
Unpredictability of Oil and Gas Revenue
At the August 18 meeting of the powerful New Mexico Legislative Finance Committee (LFC), state economists predicted that “lawmakers will have a projected $2.5 billion in new money. That’s the difference between current spending levels and expected revenues in the next fiscal year,” states an article published at USNews.com. Oil and gas revenues contribute significantly to this windfall.
Chairwoman of the LFC State Rep. Patricia “Patty” Lundstrom (D – Dist. 9) sees the windfall as a challenge for lawmakers. Lundstrom states in the most recent LFC Newsletter, “The most predictable element of New Mexico’s state budget is the unpredictability of its revenue. New Mexico’s dependence on oil and gas prices and production means the state’s budget is sensitive to the ups and downs of the notoriously volatile industry.”
Rep. Lundstrom remembers the burden New Mexico lawmakers faced after the oil price crash in 2014 to “…cut spending and scrape together enough unused revenue to keep the state afloat.”
According to Rep. Lundstrom, when the economic crises came with the pandemic a couple of years ago and oil and gas prices were low, New Mexico lawmakers knew as a result of their 2014 woes better how to plan for a “downturn”. Now with state revenues up as a result of the current boom in the oil and gas industry, lawmakers could be tempted “…to go on a spending spree.” According to an article posted at Journal Record.com, Lundstrom cautions that “year-over-year spending growth should be kept in line with the state’s annual average over the past decade.”
Just because state coffers are currently overflowing with revenue from the booming fossil fuel industry does not change the fact that such revenue cannot be counted on year-after-year. Lawmakers cannot use monies generated from the boom to create ongoing programs or to hire additional permanent employees. The money cannot be used for across the board pay raises for state employees. However, windfall revenue “…can build police stations and water treatment plants and schools, but it can’t pay the people to fill them. And that makes budgeting difficult,” states Redfern.
Specific Uses for the Windfall Revenue
New Mexico’s Early Childhood Trust Fund was created by Gov. Michelle Lujan Grisham in February of 2020. The trust invests in the education and health of the state’s toddlers. According to State Rep. Matthew McQueen (D – Dist. 50), Chairman of the House Energy, Environment and Natural Resources Committee, the trust will likely receive increased funding from the windfall revenue the state is receiving. The trust supports investing in people, which in turn is positive for the well-being of the state. Rep McQueen states, “…if we have the workforce ready to attract employers, if we have the schools ready to attract employers … over the long term that will improve our situation.”
Rep. McQueen also advocates using funds from the windfall to cap “zombie” oil and gas wells. “‘We should do that while the money is flowing,'” he says in the Capital&Main article. “‘When it’s not flowing, the state can get left holding the bag.'”
Republican gubernatorial candidate Marc Ronchetti wants New Mexicans to benefit individually from the current oil and gas boom. Ronchetti has promised that if he is elected governor “…every New Mexican regardless of age could receive $800 annually in direct payments from the State, based on the campaign’s interpretation of present production and revenue rates,” states an article posted at CurrentArgus com.
Every New Mexican would receive $100 for every billion dollars the state receives from the oil and gas industry. Ronchetti’s campaign has valued that amount at $8 billion. “That valuation is a combination of General Fund revenue and other sources.”
This year New Mexicans have already received money in cash payments from Gov. Lujan Grisham’s administration in amounts from $500 to $1,500. These payments have been “characterized as an ‘oil and gas rebate’ amid growing revenue from the industry,” states the Current Argus article.
The difference between Ronchetti’s campaign promise and what Gov. Lujan Grisham has already accomplished is that Ronchetti’s payments would be tied directly “…to oil and gas revenue, meaning as the industry and market grows so too could state money sent directly to taxpayers throughout the state.”
Figures show that state spending has increased approximately 30% during the past three years. All remember that Gov. Lujan Grisham, “…signed off this year on a $8.5 billion spending plan that included raises for teachers and state police officers and tax rebates for state residents,” states an article posted at APNews.com..
Gov. Lujan Grisham is quick to take credit for the current boom in state revenue. The Santa Fe Reporter quotes her, “‘The record high revenues we are anticipating are no accident – they are a direct result of responsible fiscal policy on the part of this administration and the healthy economic climate we are fostering.'”
Chairman of New Mexico’s Senate Finance Committee Sen. George Muñoz (D – Dist. 4) supports “revamping the state’s tax structure.”
Sen Muñoz is on record as saying, “If we want to really change, for once and for all, and keep our commitment to reducing tax rates, lowering the (gross receipts tax) and making New Mexico competitive with other states, this is one of the greatest opportunities we could have.”
