“The uncertainty of oil and gas boom-and-bust cycles isn’t necessarily “about doom and gloom. … It’s a time for prudence and a time to reinvest these resources in a way that will pay off in the long run.”
— Ryan McNeely, director, PFM Group Consulting
It is a cautionary tale New Mexico leaders and lawmakers have heard for decades: our state is too financially reliant on the vagaries of the oil and gas market and we should not depend on one-time revenue for recurring expenditures.
This warning has taken on new urgency as our state works to hit zero-carbon emissions in a matter of years.
And yet, here it is, 2023, and the forecast of $3.6 billion-with-a-“b” in new revenue for the budget year that starts in July has many, from the Legislature up to our re-elected governor, prioritizing education, health care, behavioral health and affordable housing for the upcoming session. All are important needs to consider.
And many of these recurring expenses would be covered with one-time oil-and-gas revenue. So what happens when O&G goes bust again? What happens when the day comes that we “keep it in the ground?”
That’s why it is essential to make lasting investments with this boom, to set New Mexico up for success with investments that will attract industries, businesses and job creators, investments that will provide financial futures for our young people so they stay.
Everyone going into the next legislative session should heed the wise, bipartisan counsel of folks that include Sen. George Muñoz (Gallup Democrat and Senate Finance Committee chairman); Rep. Jason Harper (Rio Rancho Republican, House minority whip and member of that chamber’s Taxation & Revenue and Transportation, Public Works & Capital Improvements committees); and PFM Group Consulting, which last month warned a legislative panel that our state government’s over-reliance on one industry for revenue creates long-term risk.
Even more damning was PFM’s statement New Mexico has a “slow growth and high poverty economy,” with a declining population, low workforce participation and a three-year poverty rate that exceeds every state but Louisiana and Mississippi. Unfortunately, Gov. Michelle Lujan Grisham is in denial, crowing in her inaugural address this month that “an act of imagination is no longer required to visualize a thriving New Mexico — we are living it.”
Really? Too many statistics simply don’t back that up.
PFM, whose research and analysis of New Mexico’s budget is funded by the Rockefeller Family Foundation, contends — as Harper has argued for years and as Muñoz points out in an op-ed in the Jan. 1 Sunday Journal — there’s actually a way to get to where the governor incorrectly believes we are.
It’s by making New Mexico a competitive place to work and live. And that comes from good-paying jobs, a fair and more transparent tax system and high-quality infrastructure. We would add targeting the next key industry and providing hand-ups, not handouts, to get more New Mexicans financially independent.
Lawmakers need to seize the opportunity to finally:
• Lower the state’s gross-receipts tax rate and broaden what’s subject to it by eliminating many of the hundreds of tax breaks. There are also GRT quirks that punish small businesses and entrepreneurs.
Some say many of the loopholes are rarely used and won’t bring in much revenue — but the state has never been able to provide an accounting. It is past time to find out which tax breaks earn their keep and which don’t, and to dump codes that keep wealth from locating here.
• Consider what taxes should be raised or lowered, and dedicate taxes on items to a related need, such as the tax on fuel to our crumbling highway/bridge system. It’s hard to raise/add taxes when state revenues are high. But it is also past time to right-size N.M.’s tax system.
• Invest in game-changing, one-time investments that include highways, water systems, bridges, airports, public transit, high-speed internet and EV charging. Muñoz is right when he writes that the state’s important investments in education, from teacher raises to free college, “will only pay off if our college graduates can live and work and thrive in New Mexico,” and long-lasting investments in quality hardscape will help “attract business and employers and retain our young people.” And he pragmatically points out this is an area where we get the most bang for our bucks, as local spending is leveraged with federal matches.
• Determine what our state’s next major revenue stream(s) will be, and finally capitalize on what should be an amazing economic development synergy of national labs, military bases, research universities and market economy, be it pharmaceuticals, medical equipment and PPE; aerospace; microelectronics; advanced manufacturing; rare earth minerals; the defense industrial base; or something else.
• Turn that social benefits cliff into a slope. Too many New Mexicans are relegated to the ranks of the “working poor” because more hours, a raise, a promotion or second job will wipe out their more valuable food, child care and/or health benefits. Our labor force participation numbers are dismal (just over half of N.M.’s working-age population, 56.7%, is actually working or looking for work). The benefits cliff discourages working as well as self-sufficiency, things every New Mexican deserves a shot at.
• Build on prior successes by creating additional permanent funds (as with early education) that are delivering amazing growth and investment returns.
Muñoz’s guest column closed with this: “we can leverage this historic opportunity to set up New Mexico for success and mitigate the boom-bust cycle that has plagued our state for decades. Or, we can recklessly spend and find ourselves scrambling in a few years when oil and gas prices inevitably crash once again.”
We hope our leaders and lawmakers take the steps to do the former. This is a pivotal moment, and their decisions will determine whether the coming year’s budget will truly deliver a “thriving” New Mexico for all.
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.