From a numbers perspective, it’s hard to see a downside to the massive amounts of oil revenue flooding the state of New Mexico’s coffers. But there is one: The windfall is enlarging the state’s dependence on the energy industry. That may not be a problem right now. But it will be when the price of oil crashes again. And almost everyone — industry experts, politicians, economists — expect that it will.
The oil boom continues to roll, and thanks in large part to the funds, the latest projection finds New Mexico will have nearly over $900 million in “new money” next year. That’s what the Legislative Finance Committee was told at a hearing Wednesday. The latest projections show that, buoyed by the oil and gas revenue, the state could see $907 million in excess of what it spent in this year’s budget, the second straight year with massive budget surpluses.
The increased revenues gives legislators more money to budget for increased spending in areas like education, healthcare and infrastructure and to add to reserves to guard against future economic slowdowns. Slowdowns could come because of the boom and bust nature of the oil and gas industry, which is over 40 percent of the state’s revenue. And there are some fears that the ongoing trade war with China and other international economic activities could lead to a global recession.
The latest New Mexico revenue projections appear to be convincing economists and state officials there is enough money to finance state government through June without resorting to government furloughs. “Based on the projections we see, yes, I think there are adequate funds,” Deputy state Treasurer Sam Collins told NM Political Report. New Mexico State University economics professor Jim Peach recently gave the Santa Fe New Mexican a similar answer. But Gov. Susana Martinez, who has been threatening furloughs for a month, had a different take. Martinez spokesman Michael Lonergan warned that the state still may not have enough cash on hand to avoid furloughs and is calling on the state Legislature to fix this in a special session.
While state lawmakers continue to slash budgets, unemployment remains high, and more uncertainty than ever surrounds federal government policies, economists said Tuesday that New Mexico’s economy has stabilized and will see an uptick in growth in the coming year. In testimony before the Senate Finance Committee, economists from the state’s two largest universities said higher energy prices are helping boost growth, and that means higher employment and income levels throughout New Mexico by 2018. Jeff Mitchell, director of the University of New Mexico’s Bureau of Business and Economic Research, said that when he spoke to lawmakers a year ago, the price for a barrel of West Texas Intermediate crude had slumped to $26.60. That benchmark as of Tuesday had climbed to almost $53. “I remember sitting here a year ago and we watched it go to $26.60,” Mitchell said.
Two experts gave a presentation of a grim scenario about oil and gas prices on Wednesday afternoon. The two spoke to the Senate Finance Committee, which plays a key role in crafting the annual state budget. Jeff Mitchell, director of the University of New Mexico Bureau of Business and Economic Research and Dr. Jim Peach, Professor of Economics at New Mexico State University outlined the problems—with few solutions—that New Mexico faces in the wake of tumbling oil prices. Mitchell’s outlook, which was slightly better than Peach’s, was that while the state is still reeling from low oil prices, the employment impact of low oil prices should wear off by 2016. Mitchell added that lower gas prices also means more savings for consumers at the pump, which generally leads to more money spent on goods and services throughout the state.