A handful of Democrats joined with Republicans at the Legislature on Friday to quash a bill that would have allowed the state to charge higher royalty rates on some oil and gas production.
The first committee hearing for House Bill 398 turned into a showdown between New Mexico’s influential oil industry and a newly elected Democratic land commissioner who came to office pledging to collect a greater share of revenue from oil produced on the millions of acres her office controls.
Land Commissioner Stephanie Garcia Richard argued that raising royalty rates is strictly good business for a state rich in oil and gas but that has one of the highest rates of poverty in the country.
But the oil and gas industry countered that it already generates a large share of the funds for New Mexico’s government through taxes and royalties. Raising royalty rates, representatives from the industry argued, would drive away business and ultimately hurt the state.
New Mexico currently charges royalty rates up to 20 percent on oil produced on state land.
Sponsored by Rep. Derrick Lente, D-Sandia Pueblo, HB 398 would have allowed for royalty rates of up to 25 percent, the same level as neighboring Texas, with which New Mexico shares the resources-rich Permian Basin.
The state has not changed its royalty rates since the 1970s, Lente told the House Commerce and Economic Development Committee.
“The bill in itself was crafted to allow [the land commissioner] to do her job to the fullest extent — generate funds for education,” Lente said after the committee hearing.
The higher rates would not apply to existing leases for oil and gas production, only certain new leases.
But Garcia Richard projected that raising the rates would eventually bring another $50 million to $84 million a year for New Mexico public schools, under certain circumstances.
“The oil and gas industry has painted a picture that we are being greedy and that we should just be happy with what we are getting,” said Garcia Richard, who since winning office has waged a campaign for higher royalty rates. “The truth is that what we are getting is a tiny fraction of the profits that they are making of our public resources; profits that line their pockets while our kids are being left behind.”
Critics countered that companies operating in New Mexico face taxes and other costs that companies do not have to bear in Texas, arguing that Garcia Richard was engaging in oversimplified oilfield economics.
Two Eddy County commissioners told the committee they feared the change would kill jobs and cause economic pain in a region of the state that is riding an oil boom.
And the oil and gas industry lobbied heavily against the move, with a trade association taking to Twitter during Friday’s hearing with an unusually brash series of messages aimed at the land commissioner.
“Instead of debating proposals that would push business on state lands away from New Mexico, we should focus on the policies that truly help our kids by attracting investments and growing our economy,” Ryan Flynn, executive director of the New Mexico Oil and Gas Association, said after the hearing.
Several Democrats also raised concerns about the measure and its potential impact on the oil industry.
“I’m not convinced it would be harmful to production in this state,” said Rep. Antonio “Moe” Maestas, a Democrat from Albuquerque who chairs the House Commerce and Economic Development Committee. But, he added, “I’m not convinced it wouldn’t be [harmful].”
In a 7-3 vote, Maestas voted to table the bill. He was joined by Republicans on the committee and two other Democrats — Reps. Jim Trujillo of Santa Fe and Patricio Ruiloba of Albuquerque.
Garcia Richard, a former legislator, said she was disappointed by her former colleagues but signaled she would bring the bill back in the future.