When the Legislature convenes Tuesday to determine the state spending that helps drive our economy – among other things – it must grapple with two hard truths.
One, new analyses suggest that the oil and gas downturn is not a temporary dip tied to the COVID pandemic but further evidence that the industry is in decline.
And two, as New Mexico’s over-reliance on oil and gas revenue has implications for our economy, state finances and the environment, it can and must be addressed to ensure a prosperous future for all New Mexicans.
Instead of crossing our fingers and hoping the prices and demand for oil and gas go up, two new reports suggest this is the right moment to accelerate the diversification of our economy and stabilize and improve how the state collects the money needed to educate our children, maintain and expand our infrastructure, support health care and public safety, and more.
A new report finds that the top oil companies have faced declining profits for most of the past 10 years and that the oil and gas sector has lost much of the muscle it once had on Wall Street.
This report, from the Institute for Energy Economics and Financial Analysis (IEEFA), concludes that years of over-production have been unprofitable and unsustainable, and the oil and gas industry in New Mexico is unlikely to rebound to historic levels. It recommends the state “comprehensively and aggressively overhaul its economic development programs to encourage greater diversification of its industrial and commercial base.”
A second report provides a road map to stabilize and diversify our revenue, while also delivering a more equitable tax system and helping build a healthier, more resilient and climate-friendly economy for New Mexico. This report, from public finance experts at PFM who presented it to the Revenue Stabilization and Tax Policy Committee in December, offers policy recommendations to meet state tax principles, incentivize investment in clean industries, and ensure resources are available to support key services.
Our reliance on volatile revenue from the oil and gas industry has meant that too often we have been forced to cut funding for early learning, K-12 and higher education, as well as other critical services.
As we emerge from the pandemic to rebuild our state, we must reject the status quo, fix what’s broken about our tax system, and commit to the innovations needed to support the investments our children, families and small businesses need to thrive in a 21st century economy.
Among the PFM recommendations worth pursuing: repealing income tax cuts for the wealthy, including the enormous deduction for capital gains income, as well as reinstating the estate tax on those with the most wealth. None of these tax breaks brought any benefit to the state – no new jobs or influx of rich people – but they did deprive the state of important revenue and make us far more reliant on oil and gas revenue.
New approaches to economic development will also be important. In addition to ensuring we have the stable revenue needed to invest in the education, infrastructure and workforce programs that really entice companies to be here, PFM has it right in recommending:
• Providing incentives to industries working on renewable energy technology and processes.
• Leveraging the state’s anchor institutions to encourage similar industries to cluster near them to reduce costs.
• Expanding good-paying, middle-skill manufacturing jobs through targeted job training and workforce intermediaries.
Taken together, these initiatives can move New Mexico in a better direction, one where we have the revenue to invest in a world-class education system and innovative industries of the future, and one where the skill and strength of our workforce draws businesses as much as our cultures and landscapes do. It is time for a more stable and equitable revenue system and a cleaner and more prosperous economy. It is time to move forward.