New Mexico’s environmental and oil and gas regulators are facing budget cuts for the next fiscal year, as nine months of the COVID-19 pandemic and a significant downturn in the oil market has depleted the state’s budget.
The budget reductions come after years of attrition in regulatory budgets under the Susana Martinez administration. The New Mexico Environment Department’s budget was cut by 32 percent between fiscal years (FY) 2012 and 2019, which was the last fiscal year budget passed by the legislature in 2018 before Martinez left office, according to a report released by the New Mexico Wilderness Alliance. The Energy, Minerals and Natural Resources Department (EMNRD) saw its budget drop roughly 24 percent under the Martinez administration between fiscal years 2012 and 2019.
In Gov. Michelle Lujan Grisham’s first budget proposal for FY2020, NMED’s general fund increased 6 percent compared to FY2019, while EMNRD saw a 9 percent increase in fiscal year 2020 over 2019. The departments saw similar increases in the FY2021 budget. But some of that progress will be reversed as the state grapples with the fiscal ramifications of a nearly year-long public health emergency and an oil boom bust.
NMED to cut back on some services
NMED submitted a $89.2 million budget request for fiscal year 2022. That includes $12.5 million requested from the state’s general fund, a 5 percent reduction over FY2021’s general fund allocation.
The lion’s share of NMED’s budget comes from special revenue funds, not the state’s general fund. For FY 2022, the remaining $76.7 million, representing 86 percent of NMED’s budget and down $3 million from last year, would come from other sources, including grants and fees.
“We’re a very minority general fund agency; we’re a very much majority grants and special revenue funds agency,” Kenney explained to state legislators during a recent Legislative Finance Committee meeting. “We have 90 grants active at any given time and we have 24 special revenue funds. While you may see us in the context of the general fund as being relatively simple and small, the back end of our finances is extremely complex with as many grants and special revenue funds as we administer.”
The budget crunch comes as NMED has taken on more responsibilities during the pandemic. Kenney said his department has received grants and funds from the U.S. Department of Labor and the CARES Act. That money will expire and the department is hoping to secure more funding to continue its COVID response, in addition to regulating the state’s air and water resources.
But Kenney warned state lawmakers that NMED will be forced to cut services as a result of the budget cuts.
“Budget reductions do have impacts for us and we are going to need to disinvest from some work that we do without funding,” Kenney said.
He pointed to the Water Conservation Fund, which reimburses drinking water treatment plants for testing they do on drinking water. That fund has less than two years of solvency left. A separate Public Water Supply Fund, which funds operator training and certification for public drinking water and wastewater facilities, has less than one year of solvency left.
Kenney said the department will request raising fees associated with the fund during the legislative session, in order to channel more money into the fund. If the Legislature approves the fee increases, Kenney said it’ll take months before the fund will see the money.
“In the meantime, we are going to have to cut back on certain pollutants being tested for which is disappointing, I would say, and a little nerve wracking to think about it as from a drinking water perspective,” Kenney said.
The state’s Air Quality Permit Fund has about two years left of solvency, Kenney said.
“This is one we expect to have a rulemaking for next calendar year to increase our fees here so that we can continue to issue permits in the state of New Mexico,” Kenney said.
“We will probably have delays in permitting and things like that, that just because we’re so bare bones to begin with, on our budget,” he said.
NMED may continue teleworking into the future to save money
The department is actively rebuilding its workforce after reaching a 26 percent vacancy rate at the start of the Lujan Grisham administration. Kenney said he expects to have 616 full time employees by the start of FY22 in July, which would bring the department’s vacancy rate down to just 8 percent. Kenney said that’s a normal vacancy rate for an agency as large as NMED.
NMED is also considering expanding teleworking among its 26 offices across the state as an additional cost-cutting measure. NMED was forced to close an office in Socorro earlier this year due to budget constraints.
“We did close our support office earlier this year, from a lack of funds and staff to maintain being open,” Kenney said. “One hundred percent of our employees are teleworking for the most part, with occasionally going in to get mail and things like that. So we have opportunities to save additional money because we’re teleworking so well, going into the future.”
Kenney said that might include reducing NMED’s physical footprint to save money.
EMNRD proposes 20 percent budget cut for OCD
EMNRD requested $68 million for FY22, a roughly 10 percent reduction over FY21’s budget for the department. That includes a $682,800 reduction in the department’s general fund allocation.
Secretary Sarah Cottrell Propst told legislators EMNRD is facing cuts in other funds in the department, due to the pandemic and the oil market slump.
“So we needed to right size those budgets based on what’s coming in the door,” she said. “Some of the cuts are partially offset by increasing our federal requests and other revenues.”
The Oil Conservation Division, which regulates the oil and gas industry in the state, is facing a 20 percent budget cut over FY21 levels. EMNRD has proposed a $10.7 million budget for the division for FY22.
“This is painful to me, because this division has a lot of work on its plate,” Cottrell Propst said. “But it’s necessary.”
Lawmakers question timing on methane rules
State legislators again raised concerns about the potential fiscal impacts of the methane rules which EMNRD and NMED are developing while the state grapples with the budget. State legislators seemed worried that imposing new regulations on oil and gas companies during the oil market downturn might drive operators out of New Mexico.
Sen. William Burt, R-Alamogordo, asked whether the department could “look at the possibility of moving compliance with these rules down the road, a year or two, to make sure that we get past the downturn in the economy, as well as the COVID issue.”
Sen. Gay Kernan, R-Hobbs, said the new rules are “going to have an impact on our independent producers” who “are not going to have the money to abide by some of the new rules and regulations.”
And Sen. George Muñoz, D-Gallup, warned that the state’s education system relies on oil and gas revenues.
“You have approximately 45,000 people in a school district that are relying on their payroll checks and their revenue for their jobs, based on oil and gas,” Muñoz said. “I think we have to take a step back and [use] extra caution, because if we make changes to industry in regulations—in any way, shape, or form—industry usually pulls back and relooks at what they have to do, and how their profit margins are operating.”
Cotrell Propst responded that the state has an opportunity to “become a national model or for these types of rules” and that the state has an economic interest in reducing methane waste.
“I’m sure that if some folks had their druthers we would not be doing this at all, but I think they also appreciate that it’s important to the state not to waste a resource that provides important funding,” she said.
“We know that we have an environmental waste problem now. And we need to get a handle on it,” she said. “I think we’re getting really good cooperation from the industry on that and so I have good momentum to propose something we think is workable and reasonable.”