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SANTA FE – After several stagnant years, New Mexico’s economy is finally showing signs of growth.
Driven by a surge of drilling in the oil patch, the state’s gross domestic product – a key economic indicator – grew by 2.8 percent in the first quarter of this year, the third-highest growth of any state. Only Texas and West Virginia posted more robust gains, according to the federal Bureau of Economic Analysis.
That came after New Mexico was one of only 10 states to post a decrease in its 2016 gross domestic product, compared with the previous year.
“This is encouraging news for our families, communities and businesses,” Gov. Susana Martinez said Tuesday, while attributing the growth to tax cuts and streamlined regulations. “Through a relentless commitment to reforms … we’re growing and diversifying our economy and competing for jobs and investment with neighboring states like never before – and even beating them.”
Recent tax cuts include a 2015 package that renewed and expanded roughly a half-dozen tax incentives and controversial 2013 legislation that trimmed the state’s corporate income tax rate and expanded the state’s film rebate program, among other provisions.
Meanwhile, the positive economic indicators are also helping the state’s coffers, as the cash-strapped state was on track to take in more revenue than projected for the budget year that ended in June.
A Legislative Finance Committee report that tracked revenue collections through May found that mineral production taxes from the oil and natural gas industries made up more than half of an $121 million year-over-year revenue increase.
New Mexico has lagged behind its neighbors in job growth for several years and has posted one of the nation’s highest unemployment rates – the jobless rate was 6.6 percent in May – for most of this year.
But increased drilling activity and multibillion-dollar deals in the Permian Basin, which straddles Texas and New Mexico, have helped propel the state’s recent economic hot streak.
Specifically, technological advances like directional drilling and hydraulic fracturing have made it more efficient for oil producers to tap the region’s shale fields even though prices haven’t fully rebounded from several years ago, said Robert McEntyre of the New Mexico Oil and Gas Association.
And the numbers appear to back that up – there were 61 oil rigs in the state as of last week, compared with just 13 rigs in March 2016.
In addition, oil production in New Mexico climbed 9 percent through the first five months of this year, compared with the same period last year, according to state Oil Conservation Division statistics. Production, in fact, reached a little over 65 million barrels this year through the end of May.
“I think there’s a lot of positive momentum in the industry and a lot of acquisitions,” McEntyre told the Journal. “It’s conventional wisdom that parking lots across southeast New Mexico are full again.”
After two straight years of less-than-expected revenue collections that led to budget cuts and the depletion of the state’s cash reserves, New Mexico took in $121 million more in taxes and royalties – or about 2.4 percent – during the first 11 months of the just-ended fiscal year than it did during the same time period of the previous year, according to the recent Legislative Finance Committee report.
Rep. Patricia Lundstrom, D-Gallup, the committee’s chairwoman, said the figures represent an encouraging uptick but cautioned that it’s unclear whether the trend will continue.
“It’s an indication the economy is getting stronger,” Lundstrom told the Journal. “I think things are going up.”
But she said that although the tax cuts enacted in recent years may have played a role in the recent economic growth, other factors are likely at work, too.
New Mexico lawmakers have attempted to lure more businesses and encourage expansion in recent years by more than quadrupling state spending on a “closing fund” aimed at helping defer the cost of business relocation and expansion. Money from the program helped persuade Facebook to build a massive data center in Los Lunas instead of in Utah.
Facebook announced last month that it would build a second $250 million building at the Los Lunas site, which is expected to temporarily employ as many as 1,000 construction workers.
Despite the good news, there are still trouble spots in the state’s economy.
Corporate income tax revenues have plunged in recent years, for instance, and were down by $65 million through May of the just-completed budget year compared with the previous year, according to LFC data.
Journal Capitol Bureau reporter Dan McKay contributed to this report.