Oil price comeback brightens state revenue projections

Good news from New Mexico’s oil patch is boosting revenue growth for state government, economists said Thursday, providing a projected cash cushion of over 11 percent by the end of June for the state’s general operating fund. And so far, there is no shortage of ideas for how to spend that money — they range from […]

Oil price comeback brightens state revenue projections

Good news from New Mexico’s oil patch is boosting revenue growth for state government, economists said Thursday, providing a projected cash cushion of over 11 percent by the end of June for the state’s general operating fund.

And so far, there is no shortage of ideas for how to spend that money — they range from additional dollars for crime prevention in Bernalillo County to state employee pay raises and the expansion of tax breaks for National Guard service to the film industry, local shopping, residential solar projects and pilot training. Gov. Susana Martinez also is hoping to reduce the gross receipts tax burden on manufacturing and service businesses by removing tax pyramiding.

Economists, however, warn that the money flowing into New Mexico’s coffers from oil production is volatile — and the state is coming out of two years in which budgets were slashed because of falling revenue. That collapse was related to a fall in oil prices, as the decline brought less drilling, spawning industry layoffs and less spending by business and consumers in oil-dependent corners of the state.

The consensus revenue forecast presented to state lawmakers Thursday added some $158 million to last month’s prediction for what the state expects to take in this fiscal year in taxes and royalties. Likewise, the forecast adds $93 million in revenue for the 2019 fiscal year, which begins July 1.

The majority of the boost is due to record crude oil production in the southeast corner of the state, which includes part of an area known as the Permian Basin.

“About 70 percent of the year-over-year growth in FY 18 revenues is due to gains in severance tax collections and oil- and gas-related rents and royalties, and gross receipts tax revenue from Eddy and Lea counties,” according to the presentation to a House committee by Legislative Finance Committee economists Jon Clark and Dawn Iglesias.

In fact, despite the emphasis by both the governor and lawmakers to diversify the economy, the rapid rise in crude oil prices — from $46 last summer to $65 today — means 9 percent of total state economic activity is tied to energy revenue, perhaps the highest ever. Driving the extraction is new technology and horizontal drilling that is pushing the United States past Saudi Arabia in the volume of crude oil mined from its territory.

“We are more dependent on oil and gas than we ever have been, and it’s getting worse,” Clark told the House Appropriations and Finance Committee on Thursday afternoon.

But Rep. James Townsend, R-Artesia, said one thing different during the current boom is that producers can export crude oil, and pipelines to move the crude from New Mexico to ports in Texas are already under construction. He said that might result in a steadier production level, unlike the past cycles in which production has fallen steeply during economic downturns in America.

“That opens a market that producers in New Mexico have never enjoyed,” Townsend said. “I’ve read articles that they’re here for the next 50 years.”

The new numbers mean the state’s $6.1 billion general fund, the pot of dollars used for day-to-day operations, including public education and criminal justice, would close out the fiscal year June 30 with a surplus of $679 million, or 11.2 percent.

The forecast also estimates fiscal year 2019 revenues at $6.37 million, which means the Legislature and Gov. Susana Martinez have $292 million in so-called “new money” to build their spending plans during the 30-day legislative session. New money is defined as the amount of unspent tax dollars above current appropriations.

New Mexico is one of just a few states where the Legislature and the governor submit their annual budgets by using the same revenue number that is reached by a consensus forecasting group, which includes experts from the administration and the Legislative Finance Committee, the budget arm of the Legislature. Once that number is published, the spending priorities for services such as education, Medicaid and courts often differ, but the total bottom-line appropriation amount is the same.

The official forecast for budgeting is released in December and often not revised before the lawmakers convene a month later. This year, a lot changed and there was wide agreement that previous signs of strong revenue growth had become a reality, said Clinton Turner, chief economist with the state Department of Finance and Administration.

The cratering revenue in recent years also affected New Mexico’s cash reserves, which dropped to below zero and forced two special legislative sessions to balance the books. Moody’s Investors Services cut the state bond rating, which increases the borrowing costs for capital projects.

With reserves replenished, lawmakers and the governor hope the state’s AAA rating will be restored. On June 30, 2012, the end of the first full year that Martinez oversaw the budget, the cash balance was $713 million. Reserves peaked at the end of 2006 just short of $800 million, or 16 percent of spending.

House Appropriations and Finance Committee Chairwoman Patricia Lundstrom, D-Gallup, was among those Thursday who said the growth in energy should be viewed as a wake-up call. “We have high growth in one industry that generates all the revenue,” she said. “We need to expand the base, and we need to continue our good budget practices.”

Sen. John Arthur Smith, D-Deming, chairman of the Senate Finance Committee, said the 2019 spending plan should not be increased from when lawmakers finalized budgets in December, when total new money was pegged at $200 million.

“The good news is it’s getting better; the bad new is it’s highly volatile,” Smith said. “We still have huge problems.”

We're ad free

That means that we rely on support from readers like you. Help us keep reporting on the most important New Mexico Stories by donating today.

Related

Emily’s List endorses seven candidates for Legislature

Emily’s List endorses seven candidates for Legislature

Emily’s List, a nonprofit that supports women candidates and reproductive rights, endorsed seven incumbents facing general election opponents in New Mexico legislative elections. All…
Equality New Mexico endorses 15 legislative candidates

Equality New Mexico endorses 15 legislative candidates

A New Mexico-based LGBTQ rights organization endorsed 15 candidates for state House and Senate seats for the 2024 elections.  Marshall Martinez, executive director of…
Lujan Grisham pocket vetoes two bills

Lujan Grisham pocket vetoes two bills

Gov. Michelle Lujan Grisham pocket vetoed two bills the legislature passed this legislative session: one changing the Cybersecurity Act and the other concerning law…
BLM announces final methane waste rule

BLM announces final methane waste rule

The federal Bureau of Land Management announced its final methane waste rule on Wednesday. These new regulations clamp down on the practice of venting…
What consumers, farmers should know about the flu impacting dairy cows

What consumers, farmers should know about the flu impacting dairy cows

Migrating birds appear to have caused a virus in dairy cattle that is causing reduced milk production. So far, the disease, which initially started…
Republicans seek to limit national monument designations

Republicans seek to limit national monument designations

Republican-backed legislation in the U.S. Congress would make it harder for the government to designate new national monuments. The proposed Congressional Oversight of the…
Amid new graduation requirements, what do high schoolers want to learn?

Amid new graduation requirements, what do high schoolers want to learn?

By Margaret O’Hara, The Santa Fe New Mexican The main things that bring Brayan Chavez to school every day: Seeing, talking to and engaging with…
Special ed teachers hope lawmakers OK pay raises, admin changes

Special ed teachers hope lawmakers OK pay raises, admin changes

By Margaret O’Hara, The Santa Fe New Mexican Brittany Behenna Griffith has a laundry list of adjectives to describe the ideal special education teacher:…
Lawmakers must find consensus on competing education spending plans

Lawmakers must find consensus on competing education spending plans

By Margaret O’Hara, The Santa Fe New Mexican A challenging task awaits New Mexico lawmakers in the next 30 days: Reconciling three very different…
Health workers fear it’s profits before protection as CDC revisits airborne transmission

Health workers fear it’s profits before protection as CDC revisits airborne transmission

Amy Maxmen, KFF Health News Four years after hospitals in New York City overflowed with covid-19 patients, emergency physician Sonya Stokes remains shaken by…
Lujan Grisham, Biden admin announce $10 million in federal funds for tribes, pueblos

Lujan Grisham, Biden admin announce $10 million in federal funds for tribes, pueblos

Gov. Michelle Lujan Grisham announced Friday $10 million in funding from the federal American Rescue Plan Act was awarded to six tribal nations and…
Proposal to curb executive powers moves to House Judiciary

Proposal to curb executive powers moves to House Judiciary

The House Government, Elections and Indian Affairs Committee discussed a potential constitutional amendment that seeks to limit the governor’s executive powers. The committee approved…
Senators introduce legislation to aid abortion providers

Senators introduce legislation to aid abortion providers

Sen. Martin Heinrih and other Senate colleagues introduced abortion rights legislation into the U.S. Senate on Thursday. The Abortion Care Capacity Enhancement and Support…
U.S. Supreme Court hears case to restrict access to medication abortion

U.S. Supreme Court hears case to restrict access to medication abortion

The U.S. Supreme Court heard the case about the regulations around mifepristone, one of a two-step regime for abortion medication, on Tuesday. FDA v.…
At stake in mifepristone case: Abortion, FDA’s authority, and return to 1873 obscenity law

At stake in mifepristone case: Abortion, FDA’s authority, and return to 1873 obscenity law

Lawyers from the conservative Christian group that won the case to overturn Roe v. Wade are returning to the U.S. Supreme Court on Tuesday in pursuit…
Senators introduce legislation to aid abortion providers

Senators introduce legislation to aid abortion providers

Sen. Martin Heinrih and other Senate colleagues introduced abortion rights legislation into the U.S. Senate on Thursday. The Abortion Care Capacity Enhancement and Support…
New Mexico Medicaid to cover cost of over-the-counter oral contraception

New Mexico Medicaid to cover cost of over-the-counter oral contraception

New Mexico Medicaid announced on Wednesday that it will cover the cost of Opill, the first oral contraception approved for over-the-counter use. It is…
U.S. Supreme Court hears case to restrict access to medication abortion

U.S. Supreme Court hears case to restrict access to medication abortion

The U.S. Supreme Court heard the case about the regulations around mifepristone, one of a two-step regime for abortion medication, on Tuesday. FDA v.…
San Juan County, Navajo Nation settle redistricting case

San Juan County, Navajo Nation settle redistricting case

The Navajo Nation and San Juan County reached an agreement Monday about commission districts after the tribe alleged that its members were not adequately…
MIT ranks NM elections most well-run in the U.S.

MIT ranks NM elections most well-run in the U.S.

New Mexico’s 2022 election was ranked most well-run in the country by Massachusetts Institute of Technology’s Election Data and Science Lab’s Elections Performance Index.…
Emily’s List endorses seven candidates for Legislature

Emily’s List endorses seven candidates for Legislature

Emily’s List, a nonprofit that supports women candidates and reproductive rights, endorsed seven incumbents facing general election opponents in New Mexico legislative elections. All…
Ex-GOP candidate allegedly hired people to kill witnesses in shootings of homes of Democratix politicians

Ex-GOP candidate allegedly hired people to kill witnesses in shootings of homes of Democratix politicians

Republican failed state house candidate Solomon Peña is facing more federal charges, this time on a murder-for-hire scheme.  Peña allegedly tried to hire two…
BLM announces final methane waste rule

BLM announces final methane waste rule

The federal Bureau of Land Management announced its final methane waste rule on Wednesday. These new regulations clamp down on the practice of venting…
U.S. Supreme Court hears case to restrict access to medication abortion

U.S. Supreme Court hears case to restrict access to medication abortion

The U.S. Supreme Court heard the case about the regulations around mifepristone, one of a two-step regime for abortion medication, on Tuesday. FDA v.…

GET INVOLVED

© 2023 New Mexico Political Report