THE SLICKNew Mexico’s Oil and Gas Revenues Are Breaking Records and Complicating Budgets

 

Oil and gas revenues added more than $1.7 billion to New Mexico coffers in the first four months of the year — more than in any other four-month period in state history.

A lot more.

Records compiled by the New Mexico Tax and Revenue Department show that year-on-year, revenues from January through April more than doubled from $782 million in 2021 — itself a record year. (Records lag by two months to allow producers time to report their production numbers.) This money gusher comes from increasing production in New Mexico’s portion of the Permian Basin — currently the most productive oilfield on the planet — and skyrocketing oil and gas prices brought on by the Russian invasion of Ukraine.

State Sen. George Muñoz (D-Gallup), vice chair of the powerful Legislative Finance Committee, says that committee economists peg the state’s likely take from oil and gas at $5.2 billion for the fiscal year — roughly a billion more than last year’s oil and gas revenue. That tally may rise if world oil prices remain high.

Mountains of money are generally a good thing for anyone, but the unplanned windfall does come with complications. The first is the kind of money brought in by oil and gas production. Roughly speaking, state government views revenues in two ways: as one-time or recurring income. Recurring money remains fairly steady year after year. For example, people will generally remain employed and use their earnings to buy things, making income and sales taxes a reliable source of steady, recurring revenue for the state.

 

New Mexico was the first state to return to — and then exceed — pre-pandemic oil production levels earlier this year after they cratered in early 2020.

 

However, record-breaking fossil fuel revenue is treated as one-time money: It can’t be counted on to repeat, so it can’t be used to create new programs, add permanent jobs or increase pay for state employees across the board. One-time money can build police stations and water treatment plants and schools, but it can’t pay the people to fill them. And that makes budgeting difficult. “When you have that one-time money surpassing recurring money, it becomes a little topsy-turvy,” Muñoz says. And he says that his committee’s economists are predicting that that is exactly what is about to happen.

The second problem stems from the first: This is oil money, and oil money has a roller-coaster history and a murky, finite future.

“I have ridden the roller coaster,” Muñoz says. “I came in in [2009] where we had to cut a billion dollars out of the budget” because fossil fuel production had tanked during the Great Recession. It’s not something he wants to do again.

Kelly O’Donnell, a New Mexico economist who keeps tabs on the oil and gas industry, agrees that this isn’t the state’s first boom year — but that history rarely serves as a guide. “New Mexico has had a tendency towards selective amnesia about these things,” she says. “We are always surprised when the bad times show up.” Yet they always do.

“To progress economically, over time, we are going to have to get out of this boom-bust resource cycle,” she says. “When it goes down next time, it may not come back up, and we have to be prepared for that reality.”