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This story is part one of a two-part series. Read part two here.
Eddy County, NM, was a sleepy, low-key place when retired teacher Vickie Connally and her family moved to their little ranch in Loving south of Carlsbad years ago. Her voice still sounds incredulous. “It’s not that way any more.”
Over the past three years, Connally and her neighbors have watched in amazement as oil companies flooded in—a mad rush of workers from as far away as Pennsylvania arriving to hoist up horizontal drills and hydraulic shale fracturing operations, siphoning volumes of oil and natural gas this area hasn’t seen since the 1970s. In mid-2014, Eddy overtook Lea as the top oil-producing county in the state while New Mexico’s 2013 crude oil production ranking rose to sixth in the nation.
There’s no denying the oil boom’s sudden changes have brought positive things, says Connally. Her son has a good career with an oil company. Those fortunate enough to own real estate have seen higher property values.
“Everyone can make money in some way, whether it’s renting out a room or space for an RV,” says Connally. Restaurants are packed, she adds, and “you get an interesting mix coming into town. When well sites go up, they’re like little tiny cities where people are basically living and working there around the clock.” Connally got to know a crew from Louisiana that constructed a well on her property.
Residents like Connally and local leadership echo variations of the same: Southeast New Mexico, and by extension the whole state, is “blessed” by the oil and gas industry—by new tax revenue, by thousands of jobs created and hundreds more waiting to be filled.
Yet with the benefits come intense pressures on local services. An already limited housing supply quickly failed to keep up with the demand from new workers; soon the available motel rooms in Eddy couldn’t, either. Impromptu RV parks popped up on fallow farm acreage, and temporary “man camps” were trucked in to sites across the region.
As Connally says ruefully, the oil and gas industry’s blessings are “definitely a double-edged sword.”
That double edge cuts to the heart of a challenge lawmakers face during the upcoming legislative session: What’s the best way to distribute revenue dollars from oil and gas that have been severed from public lands? Do we direct more money to projects in parts of the state still struggling with sluggish economies? Or return money to oil and gas regions that drive state revenue and take the brunt of the industry’s bad side-effects?
The Money Train
There are many ways New Mexico funnels cash from highly profitable oil and gas operations to pay for state programs and investments.
Some taxes are collected based on the market value and sale of oil and natural gas. A conservation tax gets levied to reclaim land that’s no longer producing petroleum. There’s a tax based on natural gas processing and another on the value of equipment owned by production companies. Plus, of course, oil and gas companies and employees pay income taxes.
A report published last January by the New Mexico Tax Research Institute (commissioned by the New Mexico Oil and Gas Association, an industry group) tallied $1.7 billion total industry contributions to the state General Fund in FY2013. That’s 31 percent of the fund’s total revenue—nearly one-third of money we use for K-12 schools, higher education, and other important state services like hospitals and public welfare programs.
Another crucial tax is levied against oil and gas companies for the privilege of removing non-renewable resources from lands that belong to all New Mexicans. In our state, severance taxes make up 15 to 20 percent of all taxes the state collects.
In lean times the interest on severance taxes can be used to help balance the state budget. They’re also a way to get oil and gas companies to pay for damages such as environmental contamination or severe road damage their activities inflict on public resources.
Fears of a Busted Boom
Today in Lea and Eddy counties, however, folks report that neither the state nor local governments are able to keep pace with higher demands on local roads, housing, law enforcement, schools and healthcare caused by heavy shale oil and gas production.
A look at road concerns alone is sobering: A 2010 study in the Marcellus shale region along the U.S. East Coast calculated that a water tanker delivering to a hydraulically fracked well site every day for one year was as destructive as 3.5 million car trips.
State Rep. David Gallegos, R-Eunice, says his district has always struggled to attract private investment for services his constituents need, particularly housing, and “especially with oil and gas” asserting itself in the region.
“You don’t know when the downturn’s going to be,” says Gallegos. “If there’s a downturn in five years, investors may not recover their money for ten years. They back away from the table real quick.”
Now that crude oil prices have fallen, there’s even more uncertainty, says Gallegos, including at the Legislature where there will be less new money for lawmakers to divvy up.
“Every dollar that a barrel of oil drops costs the state $7.5 million,” says Gallegos. “It really hinders everything else. And as the money goes to Santa Fe, very little by percentage comes back to Lea County, Eddy County, Chaves County. The part that comes back is usually what’s given to us as legislators for special projects in our areas, and that’s really limited. It’s something like $750,000 for a House rep.”
Since the majority of state legislators live in the Rio Grande corridor, says Gallegos, the majority of money goes to their districts.
Former Eddy County Commissioner Jack Volpato, who is also president of the Carlsbad Chamber of Commerce, says the state government simply isn’t equipped to carry out key tasks regarding industry growth in New Mexico’s Permian Basin. For example, says Volpato, the Tax and Revenue Department doesn’t have staffing levels needed to conduct accurate tax assessments on oil and gas equipment.
With crude oil prices taking a dive, he says Eddy County is already bracing itself to scale back plans for projects like school or senior center improvements. “It’s going to be tough on a lot of people. They’re going to have to have an awful good project to make the cut when it comes down to capital outlay.”
Volpato says oil workers in the fields start talking about curtailing production once prices reach $70 per barrel. “Those prices have already come and gone. You know the production’s going to stop decreasing—you just don’t know how much or when.”
Click here to read Part Two on how oil and gas development is impacting quality of life in southeastern New Mexico.
An earlier version of this story misspelled the name of Jack Volpato. We regret the error.