Walt Rubel Commentary: Budget forecast comes with warning

Later this month, the Consensus Revenue Estimate will be released, providing the basis for the state’s budget when lawmakers meet next month in Santa Fe. And the expectation is a continuation of the oil-fueled revenue boom, leading to another record budget.

The estimate is prepared twice a year. The August report predicted lawmakers will have $659.6 million in “new money” to add to the record $13.4 billion budget for the current fiscal year. It’s a dramatic reversal from the days of the Richardson administration, when lawmakers were forced to claw back money from local school districts to avoid budget deficits, which are now allowed under state law.

And it all comes from a single source. Oil and natural gas production in New Mexico has grown by 381 percent since the year 2017, making our state the second-largest oil producer in the nation, behind only Texas. In the last year, New Mexico was responsible for nearly 50 percent of oil production growth for the entire nation.

The state has made a concerted effort to diversify its economy through things like boosting tourism, incentivising film production and legalizing cannabis. And, we have a Democratic-controlled, progressive Legislature and governor who can’t be comfortable with our expanding role in contributing to climate change.

But, like it or not, our state’s ability to provide basic services is inextricably tied to the oil and gas industry. That’s been incredibly rewarding in the last few years. But, as any lawmaker still around from the Richardson era remembers, booms in the oil industry don’t last forever.

And, the August revenue report warns that the dramatic increases in price and production are already starting to slow down. “Prices are expected to remain lower than previous highs and prior expectations because of moderating economic conditions and lower demand combined with growing supply,” the report states.

The report also notes that there has been significant consolidation in the oil industry during the past few years, creating much larger companies with more power to influence the market. They tend to prioritize shareholder returns over production growth, the report said.

The election of Donald Trump will surely mean an effort to increase domestic production by reducing environmental regulations and opening up more public lands to drilling. If successful, that increase in supply would lead to an equivalent decrease in demand, and revenue for the state.

In the past, I’ve been critical of legislators for stashing money away in various funds when we have so many critical problems that need to be addressed now. It would be a logical argument in a state that has a steady, predictable revenue supply. We don’t have that.

Last week I wrote about a proposal by Think New Mexico to address the state’s shortage of healthcare providers, and wondered how much it would all cost. In a community radio interview, Think New Mexico’s Fred Nathan said their request for a $2 billion permanent fund would cover all expenses moving forward.

Oil has been a blessing and a curse. It has provided tremendous wealth for our state government, but not its people. It has made the state complicit in activities that its leaders detest. And it has made our economy reliant on the whims and proclivities of industry executives and foreign powers. 

Stashing some money away probably isn’t a bad idea.


Walter Rubel can be reached at [email protected]

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