For as long as I’ve been a legislator I’ve repeatedly heard that New Mexico needs to end its dependence on the oil and gas industry. But we remain addicted.
When tax revenue from oil flows freely, we treat it as total gift – nature’s bounty, God’s blessing – and we do nothing to reduce our dependence. It’s made it possible to balance our budget, paying for social needs and even setting aside healthy reserves without raising taxes. It’s been a luxury I have enjoyed along with the rest of the lawmakers.
Foolishly, we have misled ourselves, pretending oil’s bonanza would continue indefinitely, and so we’ve made major cuts to other taxes at least four times in the last 40 years, further ensuring our dependence on oil.
Unfortunately, when, as is the case this year and possibly for many more, the petroleum bounty dwindles to a trickle, we have never taken advantage of that opportunity to go cold turkey. We might have adopted a financially stable tax basis for state government that would have freed us from the fossil fuel roller-coaster ride.
But, instead, when oil revenue drops, we have never tried to wean ourselves from black gold. In fact, we often attempt to relapse by adding to the already-robust financial incentives we give that industry, further re-enforcing our addiction.
We say we want to end our dependence, but we act in ways that prolong it.
To put it simply, we will only hop off the boom/bust cycles in state revenue that the petroleum industry has always brought with it when we bite the bullet and leave the revenue it generates out of our budgetary calculations.
Note, I am not suggesting we refuse to accept revenue from oil drilling activity. I am only suggesting that we should treat that revenue as serendipity, an unexpected extra, one-time only, money we should not and cannot count on beyond the year it hits our bank account. That we should detox.
We could use it for infrastructure, information technology, paying off Texas’ lawsuit over Rio Grande water. And if we can’t think of anything else to do with it, let’s build up one of the many reserve funds we have created. But we should stop pretending it’s going to be available year after year.
The hard part is figuring out how to plug the enormous hole in our budget that would create. But since we are entering a period when oil and gas revenues are going to be severely reduced, this might be the perfect time to practice completely living without it.
For the year that begins July 1, we anticipated about 33% of state revenue, or $2.7 billion, would come from oil. In the June special session we will find some way – tap reserves, cut spending, use federal assistance funds – to revise the budget, balancing it, at least on paper, with much less oil money included.
The 2022 budget, the one the January session approves, is when the oil bust will really hammer us. Where will we find the $2 billion in new revenue to replace oil money? Instead of looking at this as a catastrophe, we could look on it as an opportunity to break free from the wild ups and downs of our addiction.
It means tax reform on a massive scale. Rolling back the failed income tax cuts of 2003 and the non-producing corporate tax cuts of 2016 ought to be considered, along with ending many gross receipts exemptions. Everything has to be on the table, including tapping the Land Grant and Severance Tax permanent funds; legalizing, regulating and taxing recreational cannabis; taxing capital gains; and increasing alcohol, tobacco and gasoline taxes.
Fighting any addiction means suffering painful moments. But if we truly want to end our dependence, it can be done. Oil revenue has given us a false immunity against making tough decisions. This time we must not look to oil to bail us out.