SANTA FE, N.M. — New Mexico lawmakers conferred with energy market experts and economists about plunging oil prices Wednesday as the Legislature crafts a new state budget that relies heavily on oil and natural gas revenues.
The price of U.S. crude sank almost below $27 a barrel Wednesday to its lowest price since 2003 amid a glut in oil global supplies. That’s down from the $100 range in mid-2014.
New Mexico legislators are considering whether to put $77 million in planned state salary raises on hold as low oil prices erode the state’s revenue forecast.
Oil and natural gas revenues provided about 35 of state general fund revenues in fiscal year 2014 and may shrink to about 21 percent during the current fiscal year, according to estimates from the New Mexico Tax Research Institute.
Jim Peach, a professor of economics at New Mexico State University, said the state would be wise to reconsider any spending increase this year because oil prices may remain low and also trigger production cuts at New Mexico rigs. He recommended setting aside greater reserves than currently planned to prevent future revenue shortfalls.
“I would simply count on no new money,” he told a gathering of the Senate Finance Committee. “That’s a depressing kind of thing.”
The administration of Gov. Susana Martinez so far has recommended moving forward with the pay increases under a $6.5 billion budget that increases spending by 3.7 percent over last year.
State budget analysts plan to release a revised revenue forecast and spending recommendations next week. Lawmakers have until Feb. 18 to agree on a budget.
Low fossil fuel prices are squeezing budgets in several states that rely heavily on severance taxes, such as Alaska, Texas, North Dakota, Wyoming, Oklahoma, and West Virginia.
Alaska is facing an estimated $3.5 billion budget deficit for the coming fiscal year and has been using savings to get by, but legislative analysts say continued deficits of this size will sap the state’s reserves by fiscal year 2020.
New Mexico drillers more than doubled annual oil production between 2010 and 2015. That means recent oil price declines are having a more exaggerated impact on state revenue, said Jeff Mitchell, director of the University of New Mexico Bureau of Business and Economic Research.
He said state revenue falls by $15 million for every $1 decrease in the price per barrel. Previous estimates placed the impact closer to $10 million for each sustained $1 shift in oil prices.