It’s a conundrum that New Mexicans once again face. State coffers are overflowing with oil and gas proceeds, while gasoline prices soar to record highs.
The average national price for a gallon of regular gasoline hit $4.17 earlier this month, the highest price ever not accounting for inflation, and a dollar a gallon more than in September. That’s hard on New Mexican parents who shuttle their kids around after school and even harder on those in rural areas where many put tens of thousands of miles on their vehicles a year.
Meanwhile, state leaders debate a myriad of ways to spend windfalls from O&G production in New Mexico, which gets about 31% of its general fund revenue from the oil and natural gas industries.
Lawmakers and Gov. Michelle Lujan Grisham are currently at odds over a $50 million “junior” spending bill the governor vetoed last month. That was after they approved an $8.5 billion budget, a billion-dollar increase, or 14% over current spending levels.
Our state’s permanent funds are also overflowing. The Land Grant Permanent Fund, Severance Tax Permanent Fund, Tobacco Settlement Permanent Fund, Water Trust Fund and other governmental investments, endowments and reserve funds managed by the State Investment Council were valued at $31 billion in 2021. To paraphrase the late Robert Loggia in 1983’s “Scarface,” state leaders are unsure what to do with all the freakin’ cash.
Here’s an idea: What about giving some of the windfall to the people of New Mexico in the form of dividends?
Alaska, which now trails New Mexico in oil production, has done it since 1982. Following the completion of the Trans-Alaska Pipeline System, Alaskans amended their Constitution to create the Alaska Permanent Fund in 1976. Funded by at least 25% of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the state, Alaska’s permanent fund is valued at over $81 billion and has paid out average dividends of about $1,600 per Alaskan annually. The payments are the same to each qualified resident, regardless of age or years of residency. The principal may only be used for investments, with dividends deriving from permanent fund income and capital gains.
A tax package signed by our governor on March 8 that was underpinned by the state’s revenue bonanza provides a rebate of $250 to individual taxpayers with incomes of less than $75,000, or $500 to heads of households and married couples earning less than $150,000.
Roughly 850,000 of New Mexico’s 1.1 million taxpayers will get rebate checks. But $250 doesn’t buy the amount of food and gas it did prepandemic, and limiting the rebates to state income tax filers leaves out more than half of the state’s population, such as children, some immigrants and many of the homeless.
New Mexicans are coping with the highest inflation rates since 1982. Each dollar increase in the average price of a barrel of oil means an additional $30 million in revenue for New Mexico. But rising oil prices also lead to higher costs for goods and services, an increase in interest rates and higher fuel prices at the pumps.
Our state lands and the oil and natural gas beneath them belong to every New Mexican. Proceeds from land leases and royalties on non-renewable natural resources currently go to various savings accounts — such as the Land Grant Permanent Fund created at statehood and the early childhood trust fund created in 2020 — but not directly to New Mexicans, to whom the state could give something back.
New Mexico produced a record 442.7 million barrels of oil last year — up 18% from 2020. Legislative analysts and O&G industry experts expect the state to pump out 500 million barrels of oil this year for the first time ever. A prolonged boom in the Permian Basin, where the shale oil revolution has raised state production by three-fold since 2016, has raised New Mexico to the second largest oil producer in the U.S., second only to Texas.
“The Permian Basin remains the best place to drill in the U.S. in terms of profitability,” says Raoul LeBlanc, vice president for nonconventional oil and gas at IHS Markit, a global energy consultant. “Plays in other basins will likely grow given today’s prices, but we believe the Permian Basin will remain the primary growth place for the country going forward.”
While the Permian offers more promise than other shale basins, we won’t be tapping the basin forever. The world is moving away from fossil fuels and rapidly, some say too rapidly, outpacing the development of replacement sources of alternative energy. Nonetheless, the political climate and public sentiment demand we wean ourselves from our over-reliance on oil and gas revenues to fund state government.
However long drilling continues in New Mexico, its residents should directly benefit from the O&G windfalls while they last.
Paying oil and gas dividends is an idea worth pursuing. In addition to dramatic vistas and no state income taxes, Alaska further attracts residents with its dividend program. Such a program could make a real difference in the lives of New Mexicans; much like child tax credits.
The governor and legislators are currently discussing the possibility of an April special session that would focus on tax rebates and a revised version of the $50 million pork-barrel spending package the governor vetoed. Lawmakers are also rightfully focused on addressing soaring fuel costs and are contemplating suspending the state’s 17-cent/gallon gas tax. A 17-cent reduction in gas prices would still leave New Mexicans with $4/gallon gas, and take money away from needed road maintenance and improvement.
An idea worth adding to the discussion would be to share the windfalls with New Mexico’s residents — all of its residents — and letting them decide how to spend their dividends.
This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.