It’s hard to even talk about government revenues and expenditures because the numbers are so big.
Hundreds of millions. Billions. Even trillions. The average citizen can’t relate to those amounts. To bring this discussion of state finance down to earth, we’re going to divide everything by 1,000. Silver City and Grant County budgets are tens of millions of dollars, but we’ll call them tens of thousands.
New Mexico’s budget is more than $10 billion — $10 million now. The U.S. budget is several trillion — now several billion. In this scenario, most of us make less than a hundred dollars a year. The price of gas is one-third of a cent per gallon.
Where does the money come from? In New Mexico, the largest source of revenue, directly and indirectly, is oil and gas. Normally oil and gas revenue is good, but last year was beyond good. Revenue was $13 million (adjusted), and the state got more than $3 million of new revenue.
You may think state taxes are too high. You want to reduce your state income tax and the gross receipts taxes businesses pass on to you. And if most revenue comes from oil and gas, why not just get rid of taxes on us, and let the extraction industry fund the state?
Well, gas and oil revenue may provide the most revenue, but it’s not enough by itself. And it’s unstable.
Just a few years ago, people cut back on driving during the pandemic, and it looked like the state would have to shut down. The prediction is that this year’s surplus is an anomaly, and that oil and gas revenue will go back to normal.
No problem. Just raise tax rates for oil and gas and let the rest of us go untaxed. Well, that’s not how it works. The industry has a lot of legislative influence. And if their costs go up, our energy costs go up. Imagine paying a half a penny for a gallon of gas!
Legislators are reluctant to mess with the bonanza.
In the last session, various tax increases and regulations were proposed for the industry. Some of them seemed reasonable, but none of them passed.
In fact, the only change was a tax exemption (a subsidy) for stripper wells.
I’m not going to get into stripper wells because the governor line-item vetoed their exemption. The oil and gas industry ended up with no change. We’ve seen boom-and-bust mining here, so it’s not hard to imagine that oil and gas extraction might be the same. One way to smooth it out is with permanent funds. When the state has extra money, like now, it puts a big chunk of cash aside for investment. The state only uses the interest. Wouldn’t that be nice? If you suddenly came into big money — say $500 — would you set it aside and live off the interest? Or would you blow it on fun stuff? In fact, if you suddenly received 10 times your annual income, you could put most of it aside and still have a lot of fun. That’s sort of what the state did this year.
They spent some of the surplus on new stuff, but they also created the Conservation Legacy Permanent Fund with $300,000 out of the surplus. The purpose is to fund land, water and wildlife projects in perpetuity. That sounds like a lot of money, but the interest isn’t so much. At 5 percent, that would be $15,000 a year, which won’t go far with any state agency, even without our funny money adjustment.
The Legislature also established the New Mexico Match Fund with $75,000. This money is to match federal grants. Agencies and communities have failed to apply for grants they were eligible for due to lack of matching money.
These new funds add to a significant list of permanent funds.The granddaddy is the Land Grant Permanent Fund, founded at statehood in 1912, which now has more than $42 million (adjusted). It provides more than a million dollars a year to schools and other beneficiaries. Other funds include the Early Childhood Education and Care Fund and the Tax Stabilization Reserve.
But back to unpleasant reality: First, we have to multiply the numbers in this column by a thousand. Second, we have to remember that oil and gas means life or death. The bonus revenue won’t be worth it if we all die from climate change.
You might believe that climate change is a fraud, and that we can pig out on oil and gas. Or you might believe we have to stop drilling tomorrow, even if we freeze in the dark. But in the real world, our legislators weigh trade-offs and make difficult choices. Let’s hope they make the right ones.
