Declines in oil and gas revenue brought on by shrinking fuel demand brought on by the COVID-19 pandemic led New Mexico to lose an estimated up to $2 billion budget surplus reported last year, instead suffering an up to $2.8 billion deficit.
The budget woes prompted Gov. Michelle Lujan Grisham to call a special legislative session for lawmakers to address how the state would prepare for next year’s general session while remaining financially stable.
Lujan Grisham announced last week that the special session would start on June 18, a Thursday, and continue through the weekend.
She said federal stimulus money and reserves in state coffers could provide some relief, but lawmakers would still need to adjust the budget to account for less revenue.
“We are working with the leadership in the House and Senate to make sure we have a productive session which is about making sure that any changes to the current fiscal year get addressed to make sure the State stays in the black,” Lujan Grisham said.
A budget deficit was looming for the 2020 Legislative Session, Lujan Grisham said, which could be as high as $2.8 billion.
“I don’t want to diminish that we are in an economic crisis,” she said. “But make sure that we are in the possible position for the 2021 session.”
A May 22 report from the Legislative Finance Committee said general fund recurring revenues for Fiscal Year 2020 through February were about $5 billion, down $157 million, or 3 percent, from the same time period last year.
Mineral production taxes post a revenue decline as of February of almost $40 million when compared with last year, read the report, down to about $4 million from $43.7 million in February 2019.
Rents and royalties, which oil and gas companies pay to the state for land minerals are produced on, also saw a drop from $90 million in February 2019 to about $82 million this year.
Year-to-date revenue through February for rents and royalties was down about $393 million, the report read, from about $1.04 billion to $648 million – a 37.8 percent drop.
Revenue from New Mexico’s corporate income tax saw the biggest drop, the report read, down about $87 million from $88.6 million for Fiscal Year 2019 through February of last year to about $1.6 million for the same time frame this year.
License fees decline by 78.7 percent, from $27.7 million for FY 2019 as of February of that year, to $5.9 million this year.
The report warned of continued declines in the price per barrel of crude oil due to the pandemic impacting state revenue.
Domestic crude fell to about -$40 per barrel in April, and showed some recovery in May to about $33 per barrel as of Friday, per data from Nasdaq.
Further threatening a downward trend in oil was continued increases in production during the early months of the year, as New Mexico’s oil production was up about 28 percent in February compared with the same last year.
“Oil prices collapsed in the following months, initiated by an oil price war between Saudi Arabia and Russia and exacerbated by falling demand as state and nations around the world issued stay-at-home orders to combat the novel coronavirus,” the report read.
“Oil production in FY20 through February is up about 28 percent from the same period a year ago; however, extremely low oil prices is causing widespread shut-ins of non-economical wells, which is expected to lead to production declines in the following months.”
New Mexico Rep. Jim Townsend (R-54) of Artesia said the budget will be the main focus of the special session, as the current fiscal year was predicted to be $400 million under budget and Lujan Grisham was hoping to use about $800 million in federal stimulus funds to make up the different.
But Townsend worried the federal funding might not be available for balancing state budgets, but for direct COVID-19 relief which he said might be better spent supporting small businesses crippled by the pandemic.
“A lot of how we balance the budget will depend on how willing our governor is to have anything and everything on the table,” Townsend said. “It will also depend on how much leeway the federal government will give us in using CARES Act dollars.”
Townsend said he was slightly emboldened by the apparent rebound in oil prices, but still worried New Mexico’s economy was suffering under declining gross receipts taxes and might need to pull back on spending initiatives from last year’s session.
He pointed to a $325 million program for universal childcare, and $150 million per year in film subsidies that could be on the chopping block, along with curbing dramatic recent growth in several state agencies.
“It was just a perfect storm,” Townsend said. “We spend too much last year, we had COVID, we had oil and gas. All that out our budget in a tail spin.”
Adrian Hedden can be reached at 575-628-5516, firstname.lastname@example.org or @AdrianHedden on Twitter.
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