Copyright © 2021 Albuquerque Journal
SANTA FE – New Mexico’s eventual shift away from the oil and natural gas industries – whenever it happens – will likely require a mix of revenue-generating activities on state trust land to help absorb a big dip in incoming tax dollars.
But even a diverse approach that includes expanded renewable energy and commercial development, both of which were recommended in a report presented to a legislative panel Monday, would likely fall short of matching the impact of oil and gas when it comes to generating revenue for the state’s budget.
A top State Land Office official acknowledged Monday it will likely take several years for renewable energy and other nonfossil fuel projects on state trust land to deliver returns.
“We’re beginning to see the revenue come in from diversification efforts, but really we’re going to see that in the long term,” Sunalei Stewart, the deputy commissioner of operations, said in response to lawmakers’ questions during a meeting of the Revenue Stabilization and Tax Policy Committee.
He also said he did not have an exact estimate on the revenue that such projects could generate, but said it would likely be in the “tens of millions” of dollars in the coming years.
In 2020, oil and natural gas royalties made up about 90% of the slightly more than $1 billion in total revenue generated on New Mexico state trust land, with renewable energy activity making up most of the remainder.
The oil and gas industries also made up the lion’s share of revenue in previous years, according to a recent report issued by Headwaters Economics, a Montana-based group.
The report recommended four different activities to diversify revenue generated on New Mexico state trust land – renewable energy, commercial development, outdoor recreation and conservation.
Mark Haggerty, who helped write the report, suggested the timing is right for an increased emphasis on such projects, though he said the Legislature might need to grant additional legal authority to the State Land Office to pursue certain commercial development projects.
“We think the State Land Office should think of this as the last oil boom on state trust land in New Mexico,” Haggerty said.
The agency has already started on diversification efforts since Democrat Stephanie Garcia Richard was elected land commissioner in 2018, even amid the record-setting revenue figures fueled by oil production in southeast New Mexico.
A new office of renewable energy was created in 2019 and there are currently leases for wind power projects in place on more than 53,000 acres of state trust land in Torrance, Quay, Chaves and Roosevelt counties, with projects in the works on an additional 63,780 acres, according to State Land Office data.
Solar power projects have also been built on state trust land, but with a smaller footprint of about 1,000 acres for existing leases and an additional 3,900 acres for projects in development or construction.
“Working swiftly to diversify is the best way to reliably and sustainably generate money for future generations,” Garcia Richard said in a statement.
Even when completed, however, the wind and solar projects will only occupy about 1.4% of New Mexico’s state trust lands.
Across New Mexico, the State Land Office oversees more than 9 million acres of state trust land – and an even larger swath of mineral rights – that are intended to help fund public schools and other beneficiaries.
Revenue from state trust land flows into the state’s Land Grant Permanent Fund, which is one of the largest endowment funds in the world and grew from $18.9 billion to $23.8 billion during the budget year that ended in June due primarily to robust investment gains.
That record-high bottom line could help prop up increased state spending in coming years, as a rolling average of 5% of the fund’s value is distributed annually into New Mexico’s general fund.
That budget certainty – at least in the short term – makes it high time to pursue other types of land management actions on state trust land, advocates say.
House Majority Leader Javier Martinez, D-Albuquerque, said climate change concerns could also help hasten the expansion of New Mexico’s renewable energy industry, though he said revenue generated from wind power, solar energy and other renewable sources will not match the tax dollars generated by the fossil fuel industry.
“We know that renewables are not meant to substitute those revenues,” Martinez said.
He also asked State Land Office officials whether cannabis operations might represent a future cash generator on state trust lands, since Gov. Michelle Lujan Grisham signed a bill into law this year making New Mexico the 17th state to legalize recreational marijuana for adult users.
In response, Stewart said the State Land Office has been studying the issue but pointed out cannabis is still listed as an illegal drug by the federal government.
A recent sublease agreement between the city of Albuquerque and Netflix was touted by Stewart as an example of the type of projects the State Land Office could pursue. The film company’s planned expansion includes about 130 acres of state trust land and 170 acres of private land at Mesa del Sol.
He also cited a recent easement agreement the agency entered into with the state Game and Fish Department that ensures hunters and anglers can access state trust land.
But energy experts said Monday it’s likely New Mexico’s budgetary reliance on the oil and natural gas industries will remain in place for at least the next decade or so.
That could give the State Trust Office a time cushion of sorts while looking for new revenue streams.
“We are obligated to generate revenue,” Stewart said. “That is our mandate.”