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It’s past time to update energy business best practices

New Mexico is dependent on a volatile revenue stream. Each year we cheer revenue windfalls or scramble to adjust to shortfalls as the boom-and-bust cycle of the oil and gas industry impacts our ability to plan and pay for public education, health care and other essential services.

While regularly touting their revenue contributions to the state budget, the industry’s PR campaign fails to mention the outdated policies that shortchange our citizens, create multibillion-dollar liabilities that jeopardize the state’s financial health for future generations and hamper sustainable development.

As the former director of the N.M. Legislative Finance Committee, chief economist at the N.M. State Land Office, chief financial officer at the city of Albuquerque, and an international public finance advisor, I focused on the development of revenue policies to fund public services while promoting a competitive, sustainable and resilient economy. It’s a tall order, and actions like the creation of a Sustainable Economy Task Force, sponsored by Sen. Mimi Stewart and signed into law by Gov. Michelle Lujan Grisham, are an important step in the right direction.

More needs to be done. I applaud President Joe Biden’s review of the outdated federal oil and gas program and trust Interior Secretary Deb Haaland to carry it out in a way that benefits New Mexico. This review is critical for addressing climate change and improving fiscal planning and revenue generation.

Most of New Mexico’s oil and gas activity occurs on federal public lands with antiquated royalty rates. The current royalty rate on federal public land, 12.5%, was set in 1920 and is far below the rate charged for offshore development, 18.75%, and the rates on state land in New Mexico, 18.5-20%, or Texas, 20-25%. A study from Taxpayers for Common Sense found that if federal royalty rates were increased to just 18.75%, New Mexico could have received an additional $2.5 billion over the last decade.

The minimum bid for federal leases is another place where taxpayers are getting a raw deal. The current minimum bid at auction is a paltry $2 per acre, and if no bids are received, noncompetitive leases are offered below the $2 minimum. These public lands belong to all of us, so we should be charging a fair market rate that reflects the true value of the resources.

During the previous administration, large oil and gas companies stockpiled thousands of federal leases and permits and have been assuring their investors they have enough permits to last for years. That’s why it’s essential we update these rates now.

Finally, the review allows our state leaders to plan for the unfunded cleanup of abandoned oil and gas wells. New Mexico’s 73,000 wells could cost up to $10 billion to clean up, but current financial assurances from industry cover only about 1% of those projected costs. We need to ensure oil and gas companies post a realistic “bond” or financial assurance to be held responsible. That way, when companies declare bankruptcies, we protect our precious groundwater from pollution and taxpayers don’t foot the bill.

Former U.S. Sen. Tom Udall said, “Public lands and their natural resources belong to the American people, and it’s only fair to ask those who profit from them to return a fair share to taxpayers.”

I agree. Now is the time to take a forensic look at the way we collect payments for public resources – for the sake of our planet and our state’s balance sheet.

These low rates benefit no one but the oil and gas industry and disadvantage development of alternative energy sources such as wind, solar and geothermal energy. New Mexico deserves better.




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