SANTA FE – New Mexico’s roller-coaster revenue ride shows no signs of abating, with a surge in oil drilling driving state tax collections to the highest level they’ve been in years.
After two consecutive years of belt-tightening, a new revenue update rolled out Thursday by executive and legislative branch economists predicts the state will have $292.3 million in “new” money in the coming budget year – an increase of $93.3 million from just over a month ago.
That increase in new money – or revenue in excess of the state’s current $6.1 billion budget – could allow lawmakers to backfill spending cuts, increase the state’s cash reserves and provide more money for public schools and health programs.
In other words, lawmakers may be suffering from whiplash, but they’re doing so in much better spirits.
“We’re very happy, and it couldn’t happen at a better time for New Mexico,” said Rep. Patricia Lundstrom, D-Gallup, chairwoman of the House Appropriations and Finance Committee. “But I still think we need to be cautious as we move forward.”
The latest revenue uptick is almost entirely due to unprecedented oil production levels in the Permian Basin, in southeastern New Mexico and southwestern Texas. The number of active oil rigs in the state has jumped to 82 from 38 one year ago, and New Mexico now ranks third nationally in terms of oil production.
While overall state gross receipts tax collections are going up, roughly three-quarters of that increase comes from activity in three energy-rich counties – Lea, Eddy and San Juan.
“I guess the moral of the story is TGFF – thank goodness for fracking,” Rep. Larry Larrañaga, R-Albuquerque, said during Thursday’s hearing at the state Capitol.
However, economists cautioned that the reliance on the oil industry means there is little revenue certainty for the state in the coming years.
They urged lawmakers to set aside at least 10 percent of state spending – or more than $600 million – in cash reserves as a buffer of sorts in case projected revenue levels don’t materialize.
Gov. Susana Martinez recently called for any revenue in excess of a December estimate to be placed into the state’s reserves, which were depleted last year as lawmakers looked for ways to plug a gaping budget hole.
“We are more dependent on oil and gas than we ever have been, and it’s getting worse,” said Jon Clark, an economist for the Legislative Finance Committee. “The oil and gas industry is adding more to our revenue growth than it ever has in history.”
The latest revenue update comes as lawmakers are cobbling together a spending plan for the budget year that starts in July. The House Appropriations and Finance Committee is scheduled to vote on a spending bill on Saturday, with the full House then expected to take it up next week – which marks the midpoint of the 30-day session.
Lundstrom, who became chairwoman of the panel last year, said lawmakers would be cautious in their approach to next year’s spending plan.
But she also said the uptick in revenue should allow for 2 percent pay raises for rank-and-file state workers and teachers – higher than previously proposed – and even bigger salary increases for social workers and other hard-to-staff positions.
Most state employees have not received raises since 2014.
Lundstrom also said the additional new money could allow for some one-time general fund expenditures, with state road projects just one potential example.
Meanwhile, the state’s recent revenue growth also means some money will flow into a “rainy day” fund that lawmakers approved last year to help in revenue-lean years.
Based on the most recent revenue figures, about $15 million will most likely end up being set aside for that purpose in the coming budget year, Department of Finance and Administration economist Clinton Turner said.
Several lawmakers said Thursday the new figures show there’s much work to be done when it comes to diversifying the economy, a goal that’s been talked about for years.
But they also welcomed the oil-powered revenue uptick after two straight years of cutting spending, sweeping money from state funds and drawing down cash reserves.
“I think we’re awfully fortunate in New Mexico to have this industry to fall back on and build on,” said Rep. James Townsend, R-Artesia, a retired oil company executive.