Sky-high revenue bolstered by surging oil, natural gas production

House Maj. Leader Javier Martinez, D-Albuquerque, looks through new revenue numbers during a presentation of the State’s general fund revenue predictions during a meeting of the LFC at Taos Ski Valley Friday, August 27, 2021. (Eddie Moore/ Albuquerque Journal)

Copyright © 2021 Albuquerque Journal

TAOS SKI VALLEY – New Mexico has its share of problems, but a depleted state treasury isn’t one.

Bolstered by surging oil and natural gas production, and a rise in consumer spending, the state is on track to collect an all-time high windfall of more than $8.8 billion in revenue in the coming budget year.

The eye-popping revenue figure – nearly $1 billion higher than what was projected in February – was unveiled Friday at a Legislative Finance Committee meeting at Taos Ski Valley.

It could allow for big spending increases on New Mexico public schools, roads, health care programs and possibly help fund new initiatives, though specific plans from the Legislature and Gov. Michelle Lujan Grisham are not expected to be rolled out until January.

“There’s going to be a lot more money than we know what to do with in the next few years, but it’s not going to last forever,” said Sen. George Muñoz, D-Gallup, the LFC’s vice chairman, during a committee discussion on education issues this week.

He also suggested much of the revenue windfall should be spent on one-time expenditures – and not built into the state budget – such as an overhaul of the state’s gross receipts tax system that has been debated by lawmakers for years.

“Now is the time to tackle the structural issues of New Mexico,” Muñoz told the Journal.

Director of the Legislative Finance Committee David Abbey talks with Chair of the LFC Rep. Patricia Lundstrom, D-Gallup, during a presentation of the State’s general fund revenue predictions at a meeting of the LFCon August 27. (Eddie Moore/Albuquerque Journal)

In all, the estimates released Friday by executive and legislative economists project New Mexico lawmakers will have nearly $1.4 billion in “new” money in the coming year – a figure that represents the difference between expected revenue and the state’s current $7.4 billion budget.

The revenue total does not include more than $1.5 billion that is projected to automatically flow into a state “rainy day” fund and an early childhood endowment fund over the next two years – under changes enacted in 2017 and 2020 to set aside some money in cash-flush years.

It also does not include roughly $1.75 billion in federal relief funds that have only been partially earmarked by the Lujan Grisham administration and could be, at least in part, subject to appropriation by lawmakers during next year’s 30-day legislative session.

House Speaker Brian Egolf, D-Santa Fe, said Friday the revenue projections were proof that majority Democrats’ policies are working.

“With roughly $1.4 billion in new revenue, investments in infrastructure, families, and communities will continue to be central to our work to diversify and guarantee sustainable, long-term growth for our state,” Egolf said in a statement.

Much of the projected revenue windfall is due to higher-than-expected state gross receipts and income tax collections.

In fact, total personal income in New Mexico reached record heights during the pandemic, according to U.S. Bureau of Economic Analysis data, due in large part to federal stimulus checks and expanded unemployment benefits.

“I think New Mexico is very flush with money,” said Sen. Pat Woods, R-Broadview, who raised concerns about widespread inflation. “And it’s all about the money that poured into this state.”

Meanwhile, the projected huge increases in state tax collections comes even as the state’s employment recovery from the pandemic is expected to take longer than previously thought.

While New Mexico posted 4.3% job growth from July 2020 through June 2021, the state is still down roughly 64,000 jobs – or 7.4% – from its pre-pandemic peak.

And it’s not expected to get back to that pre-pandemic employment level until 2026, said state Taxation and Revenue Secretary Stephanie Schardin Clarke.

New Mexico has had one of the nation’s highest unemployment rates in recent months – it was tied for second-highest nationally at 7.6% as of July.

In addition, low-income New Mexicans have faced the brunt of pandemic-related job losses, and related earnings, while higher-income households have seen their earnings go up.

Specifically, statewide employment in jobs making more than $60,000 per year increased by 13.6% from January 2020 through June of this year, while employment in jobs making less than $27,000 annually decreased by 12.7% during that same time period, according to LFC data.

“This was not a typical recession,” said LFC economist Dawn Iglesias during Friday’s hearing.

Another factor in the state’s revenue bonanza is quicker-than-expected recovery of the oil industry, which declined dramatically early in the pandemic.

New Mexico, the nation’s second-biggest oil producer behind only Texas, is the only top-producing state to rebound to pre-pandemic oil production levels. It reached a record high of 1.2 million barrels per day in April, according to state Taxation and Revenue Department data.

The dramatic rebound in oil production – and an accompanying increase in oil prices – has come amid a national discussion about climate change and President Joe Biden’s pause on new oil and gas leasing on public lands in January.

The pause was blocked by a federal judge’s order in June. And the U.S. Interior Department is moving forward with new lease sales while appealing the ruling.

Natural gas production has also surged in New Mexico after a national supply glut previously stifled both production and prices, with production for the 2021 budget year up by 15% from the previous year.

“This is not just an oil story for this forecast – it’s also a natural gas story,” Iglesias said Friday.

However, much of the oil and natural gas royalty and tax collections will flow into the two state savings funds intended to provide a ready resource in cash-lean years. In past years, that money would have flown into the state general fund.

While some lawmakers have called for New Mexico to ween itself off the historically volatile oil and gas industries, revenue from the extractive industries currently makes up about 45% of the state’s total revenue base.

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