Slowly rebounding gas and oil prices, coupled with news that major multinational energy companies have spent more than $13 billion in recent months on assets in the state’s oil and gas fields, brings some welcome economic news to our state.
Both hint at a revival in oil and gas production, which accounts for about one-third of the tax revenues New Mexico uses each year to pay for education, public safety and other government services.
At the moment, New Mexicans are acutely aware of the impact of the prolonged downturn in oil and gas production. On one hand, we’ve been paying a lot less at the gas pump over the past few years; on the other, the state is facing a financial crisis so severe that lawmakers and Gov. Susana Martinez are deadlocked over the coming fiscal year’s state budget that kicks in July 1.
Public schools, state-supported colleges and universities and state government workers are hamstrung trying to craft budgets for the coming year with no clue how much state funding they’ll receive.
Because we know how we got to this point, any hint at a recovery in the oil and gas industry – and a corresponding recovery in the tax revenue it provides – is welcome news in most quarters.
Still, a few cautionary notes seem in order.
For decades, the hue and cry from the Legislature and taxpayers alike is that New Mexico needs to diversify its economy and wean itself from its over-dependence on not only the oil and gas industry, but federal government – i.e., military installations, national laboratories, entitlement programs and the like, all of which remain major economic foundations. And when one of those sectors falters, New Mexico suffers proportionately.
Like it is right now.
Broadening our economic base remains a challenge, in part because of a political reluctance to create the economic atmosphere that attracts new businesses. The Legislature is poised to take a major step in that direction by considering a much-needed overhaul of our tax structure – one that broadens the tax base while lowering the overall tax rate – in tandem with setting a 2018 budget.
The city of Hobbs, which has dealt with the boom/bust cycle of the oil and gas industries for nearly a century, is learning to mitigate the financial roller coaster by building up reserves during the booms so it can better weather the busts. There’s a lesson in there for other cities, counties and state legislators. In fact, the original incarnation of House Bill 191, sponsored by Rep. Larry Larrañaga, R-Albuquerque, would have used flush revenue times to create a true “rainy day fund.”
In light of any expansion, it bears repeating that the Legislature should also have passed Senate Bill 307, which would have restored the New Mexico Oil Conservation Division’s legal authority to fine oil and gas companies for spills and other violations of state law. When the state Supreme Court stripped the OCD of that power in 2009, its collection of fines dropped from an average of $597,000 annually to $14,000 in 2010. Lawmakers have had eight years to correct that. Considering the recent industry ramp up and the uncertain fate of the federal methane rule safeguards, OCD authority to enforce the law is more than likely to become an even more needed protection in the near future.
It’s great news that the oil and gas industry may be on the verge of revival in New Mexico, but let’s hope the state learns from this bust by moving forward to diversify its economy and put some revenue away for leaner times.
Because – as we are seeing now – it simply doesn’t work to rely on boom and bust to fund state government.
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.