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The slippery slopes of oil

ALBUQUERQUE, N.M. — Equatorial Guinea on the west coast of Africa had a per capita income of about $35,000 in 2010, according to the Council on Foreign Relations. At the same time, 75 percent of the population earned less than $700 a year, which is to say a small number of people in Equatorial Guinea made a whole lot of money.

The reason is oil. Equatorial Guinea as a nation received a surge of revenue from sale of its oil, but the vast majority of the population saw none of it. Some of it was lost to corruption and inefficiency. A big influx of dollars from oil sales can also inflate the value of the local currency, making domestic goods more expensive for locals and exports of agricultural production and other products artificially overpriced.

This is known as the oil curse. In a world of perverse financial incentives and unintended consequences, the oil curse is one of the strangest.

New Mexico suffers a different sort of oil curse. Tax, royalty and other revenue generated by the state’s oil and natural gas industry covers roughly a third of the state’s spending needs. When state legislators talk about “new money” in state coffers, that usually means oil industry revenue has grown and there will be more money for teacher and public employee raises, economic incentives, and more capital outlay money (pork) for legislators to bring back to their districts in the form of bridges, roads, senior citizens centers, libraries and sidewalks.

Put another way, legislators and citizens have to make fewer tough choices and face less urgency to find imaginative solutions to public finance problems because we happen to be sitting on reservoirs of oil and natural gas.

I’m not accusing anyone of oil-related corruption, and I certainly don’t argue that we should leave the stuff in the ground. But I worry that just as federal spending in New Mexico has shielded the state from some of the difficulties of competing in the evolving global economy, so has oil wealth. When roughly a third of the state’s spending is covered automatically by a single industry, we are under less pressure to be good, competitive businesspeople, less pressure to engage in tough but productive debates about state priorities, less pressure to reform our tax and spending policies, less pressure to seek out the common good.

Most public finance regimes are riddled with these sorts of unintended consequences, and New Mexico is not the exception.

This week, the University of New Mexico Board of Regents heard that declining oil prices would turn a projected $2.8 million UNM budget deficit into a $4.7 million deficit at precisely the same time enrollment is down. Declining enrollment costs UNM money because the state pays UNM per head. The funding formula is very complicated, and it can change quickly for any number of reasons. Lately, the university has been getting about $7,600 per student.

I asked a former UNM dean why the university admits so many students who aren’t ready to do college work. It’s that per-head appropriation, he said. Our funding formula creates incentives to admit many state residents to a state university who aren’t prepared.

(It is also true that lawmakers take a very dim view of higher admission standards because the kids of their constituents “deserve” to be Lobos if they want to be.)

Brian McDonald, an economist who is an expert on public finance in New Mexico, says an unintended consequence of our approach to financing public education is an absurdly low voter turnout in school board elections. Albuquerque School Board member Marty Esquivel wrote in a Journal op-ed piece this month that on average only 3 percent of registered voters turn out for school board elections.

McDonald says voters understand there isn’t much point. To oversimplify a bit, tax money from around the state is gathered up and sent to Santa Fe, then is sent back out to local schools around the state based on another complicated formula. The goal is to make sure that the Roy school district has funding per student more or less equal to that of Albuquerque Public Schools.

With that money come strings. Teacher salaries are structured by state law. The state dictates how some funds are spent. The state defines what makes a school successful. In that environment, voters can be forgiven for wondering what possible difference it makes who is on the local school board.

Esquivel blames low turnout in part on voter frustration “with the divisiveness and tone of the public education debate.” Divisiveness is built into a system in which one group of people controls the funding and another group delivers the service. We end up with school districts so small they make no sense but survive through subsidies from other parts of the state and with districts so big the bureaucracy is suffocating. We end up with a state bureaucracy making justifiable demands for accountability from school districts that receive the money, and we end up with local bureaucracies dealing with local problems state bureaucrats don’t understand.

UpFront is a daily front-page news and opinion column. Comment directly to Winthrop Quigley at 823-3896 or wquigley@abqjournal.com. Go to ABQjournal.com/letters/new to submit a letter to the editor.

 

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