August 24, 2023

Getting off the oil and gas roller coaster: State economists estimate another year of record revenue

State economists estimate that the Fiscal Year 2025 revenues will be $13.051 billion, which is up from the December estimate.

The interim Legislative Finance Committee discussed the budget update during its August meeting in Las Vegas on Aug. 23.

The budget forecast is particularly good in part due to legislation passed during this year’s legislative session. SB 26 increases the severance tax payment fund distributions to the general fund.

“Compared to some other times in New Mexico’s history—2008 and the Great Recession comes to mind—I think this demonstrates that overall, the state of New Mexico is in a safe place with regard to revenues, expenditures and its budgets,” Department of Finance and Administration Secretary Wayne Propst told the LFC Wednesday during the budget forecast presentation

In Fiscal Year 24, two-thirds of New Mexico’s revenue remains coming from oil and gas, “those very volatile revenues. But you can see the difference in FY 25 and that’s really the impact of that SB 26 change which takes the volatility of oil and gas out of the general fund,” Propst said.

SB 26 is expected to bring in about a half billion dollars in revenues from more stable sources such as investment earning, gross receipts taxes and personal income taxes, LFC Chief Economist Ismael Torres said.

The last budget forecast was in December 2022 when the Consensus Revenue Estimating Group presented its FY 2025 forecast with New Mexico having $12,143.4 billion revenues or 12 percent revenue growth over the previous year. 

The CREG is made up of economists from the DFA, New Mexico Taxation and Revenue Department, New Mexico Department of Transportation and the LFC.

In the time since then, SB 26 has gone into effect and an estimated 3.5 percent more revenue on FY 25 was predicted. This new projected amount is $13.051 billion in state revenue.

“We’re in such a different era. Now. Where we have the opportunity to, sort of, exit a roller coaster and get on to a steady climb towards broad prosperity for our state,” LFC Vice-Chairman Nathan Small said following the presentation.

When the CREG presented the budget revenue forecast in December, they “felt a little bit like we were stepping out on a limb and as we know, today, we didn’t even go far enough out on that limb because that 12 percent growth ended up at 20 percent growth in the last year,” Torres said.”Estimated recurring revenues for FY 24 at $12.6 billion. That’s up almost $800 million from our December estimate.”

The estimate could change prior to the final numbers presentation with the next forecast to be presented in December.