No. 2 oil-producing US state braces for possible end to income bonanza in New Mexico

SANTA FE, N.M. — A windfall in government revenue from petroleum production is slowing but far from over in New Mexico, as the nation's No. 2 oil producing state struggles with how much it can effectively spend — and how to set aside billions of dollars for the future in case that the world's hunger for oil is at an end.

According to a new forecast Monday, the state is on track for a $3.5 billion general fund surplus for the year through June 2025. New Mexico's annual state government income has risen nearly 50% over the past three years, largely due to oil and natural gas production in the Permian Basin, the most productive shale oil producing region in the country spanning southeastern New Mexico and parts of it. of West Texas.

The state will rake in a record $13 billion — exceeding annual spending commitments by a third, economists from four state agencies said in a presentation to a legislative panel. Monday's forecast expects a 2.2% growth in state government revenues, on top of the 10.2% growth during the current fiscal.

The government revenue estimate provides a basis for budget negotiations when the Democratic-led Legislature convenes in January and could expand efforts to set aside money to ensure crucial programs hold up if oil revenues falter. The forecast warns that slowing oil production and lower prices are expected to generate significantly fewer federal payments next year and beyond.

By the end of this decade, oil revenues are likely to begin a long, steady decline, “which will act as a drag on revenue growth as global demand declines,” the report said.

About half of New Mexico's general fund revenue can be traced to the oil and natural gas sector through a range of taxes and royalties on petroleum production that occurs largely on public lands — and benefits derived from the state's $28 permanent land grant fund billion dollars. for education, which is fueled by oil revenues and investment returns.

The state is looking for new revenue streams that could shift its reliance on oil, including Lujan Grisham's proposal last week to help preserve freshwater aquifers with a $500 million initiative to fund treatment of fracking wastewater. Early critics fear the plan could only lead to more oil drilling.

“We've put a lot of money into funds,” New Mexico Governor Michelle Lujan Grisham said at the United Nations climate conference in the United Arab Emirates, where calls to phase out fossil fuel use were prominent . “But you also have to create revenue streams that go to the funds that are reliable.”

Meanwhile, growth in government revenues has allowed the state to expand agency budgets, cut taxes and provide new support for families, while reducing spending on public education and colleges, which account for about 58% of the annual general expenditure of the state can be increased.

In many cases, it's more money than school districts and state agencies can effectively spend, as lawmakers push to bring average high school grades and academic performance up to the national average.

“All the resources are in place to pay the teachers more, to provide the after-school programming to provide tutoring and support,” Charles Sallee, director of the Legislature's Budget and Accountability Office, said during a recent community presentation. “It's about the ability of the bureaucracy to organize and use these resources. In many cases, capacity is under pressure.”

Frustration boiled over during a recent legislative hearing that examined the state's spending on public education and the stagnant average performance of students in public schools.

Statewide, the share of students who can read at their grade level is 38%. Mathematics proficiency is at 24%. The high school graduation rate hovers at 76% – well below the national average of 87%.

Funding is increasing while the student population is declining, said Sen. George Muñoz of Gallup, chairman of the state's leading budget-writing committee, at a hearing in November.

“So we're paying more for children, but we're still not getting there,” Muñoz said. “What are we going to do to move the needle?”

The New Mexico Early Childhood Education Trust, established in 2020, already has about $6 billion in assets. It is designed to secure an ambitious expansion of public preschools, free childcare and home nurse visits for babies.

Last year, lawmakers agreed to set aside $150 million in a new land and water conservation fund and to funnel more money from oil and natural gas into a savings account for construction projects — amounting to $3 billion by 2027.

Lawmakers are still pushing to open new savings accounts. An emerging proposal would spend $100 million on a Native American education trust, including indigenous language education among 23 tribal communities in New Mexico, including the Navajo Nation.