NM revenue growth slows, but state coffers still flush with cash from oil boom

SANTA FE — New Mexico’s unprecedented, oil-powered revenue growth is slowing, but state lawmakers will still have a mountain of money available to spend in the coming year.

New state revenue estimates released Wednesday predict legislators will have $659.6 million in “new” money available next year — a figure that represents the difference between projected revenue and current total spending levels.

“There’s really no bad news today, and frankly just continued good news,” Wayne Propst, the top budget official in Gov. Michelle Lujan Grisham’s administration, told lawmakers during a hearing in Mescalero.

“We are still in a very blessed place,” Propst added.

The state has seen its revenue levels surge over the past three-plus years, due largely to a boom in oil production in southeast New Mexico’s Permian Basin.

The state is now the second-largest oil producer in the nation — behind only Texas — and New Mexico oil drove nearly half of the United States’ total oil production growth last year, according to legislative data.

The revenue boom has allowed lawmakers to significantly increase spending levels, with public school spending alone rising by $1.6 billion — or 58% — since a landmark 2018 court ruling that found New Mexico was failing to meet its constitutional obligation to provide an adequate education to all students.

In all, the nearly $13.4 billion in projected revenue for the budget year that starts in July 2025 is more than $3 billion more than the state’s $10.2 billion budget. But the budget figure does not include hefty one-time spending on tax rebates, law enforcement recruitment stipends and more.

New funds could provide future dividends

Even as spending levels have surged, lawmakers have also set aside some of the revenue windfall for the future, creating trust funds like an early childhood fund.

That fund has exploded in size since its creation — from $300 million in 2020 to a projected $9.8 billion balance at the end of the current budget year.

Rep. Nathan Small, D-Las Cruces, the Legislative Finance Committee’s vice chairman, said the approach provides the state with some insurance should oil prices and production levels fall.

“Even in our worst-case low-oil price scenario, we’re not cutting into our recurring appropriations,” Small said during Wednesday’s hearing, alluding to past state budget shortfalls.

“That’s one of the first times in New Mexico’s history we can say that with confidence,” he later told the Journal.

He also said there will be room in next year’s budget for moderate spending growth, but cautioned such spending increases would have to be strategically targeted.

Revenue growth slows as jobs picture improves

Increased oil production is not the only reason for New Mexico’s revenue growth, as strong wage growth and inflation-related consumer spending have also been revenue drivers.

While the state had an elevated unemployment rate during much of the COVID-19 pandemic, Taxation and Revenue Secretary Stephanie Schardin Clarke said New Mexico added about 12,300 new jobs during a recent yearlong period.

However, the state’s 57.3% labor participation rate — a figure defined as residents age 16 and older who are working or actively seeking a job — still lags behind the national rate of 62.6%, LFC Chief Economist Ismael Torres said.

“Our economy would be better if more people who could work did work,” said Sen. William Sharer, R-Farmington.

The state’s revenue estimates are crafted by executive and legislative branch economists, who study state and national data to come up with the projections. They will be used by lawmakers and the governor’s administration to craft spending plans before lawmakers convene in Santa Fe for a 60-day legislative session, starting in January.

In a statement, Lujan Grisham said the revenue estimates show the strength of New Mexico’s economy — and its sturdy financial situation for whatever the next few years hold.

“In the past five years, we’ve been able to provide significant tax relief for New Mexico families and businesses and still invest in our future,” the governor said.

But some key lawmakers indicated more spending restraint could be necessary as the robust revenue growth cools off.

“We better be cautious as we move forward,” said Sen. George Muñoz, D-Gallup, the LFC’s chairman.