By Amber Wallin, Santa Fe New Mexican
Dec. 24, 2022
There’s been lots of news lately about the state’s budget surplus — a surplus that presents a great opportunity for New Mexico to make some key investments in our people and in the programs that matter most to their well-being.
What’s gotten less attention is that the surplus also highlights some fundamental issues with where the state gets money to fund crucial programs and offers some warnings — and some important opportunities — for how New Mexico could and should move forward. A new study from national finance firm PFM presented to the Revenue Stabilization and Tax Policy Committee this week explored these issues.
Covered prominently in the presentation is the fact that the state’s dependence on revenue from oil and gas, which are subject to volatile market price fluctuations, makes planning for the fiscal future incredibly difficult to accurately do. Because of this over-reliance on a boom-to-bust industry, New Mexico suffers from a structural deficit — a difference between reliable, recurring revenue and necessary, recurring spending that persists over time.
In other words, we have recurring expenses — such as education, health care, public safety and more — that we need to fund consistently year after year. But the amount of revenue the state pulls in every year is not nearly so reliable. In fact, the one reliable thing one can say about oil and gas revenue is that it’s inconsistent.
Right now, the oil and gas industry is doing well, and as a result, state coffers are overflowing. But as we’re well aware, the boom-to-bust nature of oil and gas windfalls means this moment won’t last. Fluctuations in the market price of oil and gas–and their impacts on the state–are immense. A change of $1 per barrel in the price of oil has a $48 million impact here in New Mexico — either of more or less money to spend on crucial programs every New Mexico family and business relies upon. Similarly, a change of 10 cents — a dime — in the price per thousand cubic feet of natural gas has about a $20 million impact on revenue for the state.
As PFM points out, when estimating revenue from such volatile sources as oil and gas, it’s important to ensure our conclusions are not overly optimistic. But the current picture for revenue based on growth rates may be just that. In fact, PFM indicates other equally viable scenarios exist, and they paint a far less rosy picture about our economic future. Simply put, we are potentially tens of billions of dollars off the mark when thinking long-term. Aside from this conclusion, they also note the oil and gas industry cannot sustain us in funding essential services in the long run — and we need to prepare for that reality now.
Addressing our structural deficit means taking substantive action to grow our economy elsewhere to make up for revenue gaps resulting from fossil fuel’s unstable fluctuations. Without action to build and diversify our economy, our over-reliance will remain, and our economy will struggle. Ensuring that the state’s wealthiest earners and corporations pay their fair share would not only help diversify and stabilize revenues, but would also make our tax system more equitable and help set our state budget up for success without relying so heavily on fluctuating oil and gas revenues. For the future of our families and our state, we should take into account other credible scenarios and use the current surplus as an opportunity to diversify our tax system, strengthen our economy and build a solid fiscal foundation that will serve families now and for many generations into the future.
Amber Wallin is executive director of New Mexico Voices for Children.