Record oil production lifts New Mexico state income
SANTA FE, N.M. (AP) — State economists on Wednesday revised forecasts upward for state government income amid surging oil and natural gas production in New Mexico, giving lawmakers greater leeway as they begin crafting a general fund spending plan for the coming fiscal year.
The fiscal forecasts, announced at a legislative committee hearing in the mountain resort community of Red River, hold major financial implications for public school budgets, tax incentives for filmmakers, infrastructure spending, support for Medicaid and an array of state government services.
Most of the windfall is linked to steadily growing oil and natural gas production focused in the Permian Basin that straddles New Mexico and Texas.
Economists from three state agencies and the Legislature said state general fund income for the coming fiscal year that begins on July 1, 2020, is expected to surpass current annual spending obligations by $907 million. That represents a nearly 13% surplus over current spending levels.
Legislators and first-year Democratic Gov. Michelle Lujan Grisham are grappling with efforts to expand economic opportunity in a state with the highest rate of poverty in the western U.S. and to improve the quality of public schools, after a district court ruled that the state was failing to provide most students with an adequate education.
This year, legislators authorized a $448 million increase in annual general fund spending on public schools — a 16% increase to $3.3 billion. Public education spending now accounts for nearly half of general fund spending.
“I look at this money and see that we should have the opportunity to make continued substantial investments in education and infrastructure,” Democratic House Speaker Brian Egolf said.
Lawmakers in the Republican minority cautioned against an unsustainable expansion of state government and initiatives that might dampen the state’s oil economy, as the administration of Lujan Grisham develops new rules to limit waste and pollution from natural gas venting and flaring.
Lujan Grisham spokeswoman Nora Sackett said the governor is excited about prospects for new investments in a variety of education and anti-poverty programs for children, along with public safety and economic development initiatives.
State reserves would swell to $2.3 billion by next July if spending remains stable — a financial buffer against a fiscal or economic downturn equal to more than 30% of annual general fund spending.
State revenue from taxes on sales and services is expected to increase by 9% during the current budget year that began July 1 to $3 billion. The increase is tied primarily to oil-producing counties in the southeast of the state.
The outlook comes with warnings of budgetary risks as state dependence on the oil sector increases. Annual oil production that averaged 70 million barrels between 1980 and 2010 is approaching 350 million barrels this year.
“The results of a sharp decline in oil prices and production activity could create a fiscal challenge far more severe than a moderate recession,” an analysis from Legislative staff warned.
New revenues are needed to underwrite a major increase in tax rebates to the film industry approved this year in an effort to boost industry growth and employment.
Those reforms raised the annual cap on most film tax rebates to $110 million, while the credits are unlimited for companies including Netflix and NBCUniversal that have committed to sustained film activity in the state. Annual spending on the rebates is expected to reach $165 million by 2023.
“We’re also sending a lot of money to Hollywood that perhaps could be spent somewhere else,” said Republican state Rep. Jason Harper of Rio Rancho.