New Mexico’s revenue boom is showing no signs of busting.
Total state revenue collections were roughly $273 million above projected levels through April, according to a new report, due primarily to skyrocketing oil production in southeastern New Mexico that has led to a regional economic upswing.
The higher-than-expected revenue surge – the state is now on track to collect an unprecedented $7.8 billion in the budget year that ended June 30 – could allow for additional spending increases on public schools, roads, pension funds and other state programs.
New Mexico was already expecting a $1.3 billion budget surplus for the fiscal year, but the latest Legislative Finance Committee revenue tracking report suggests that the final surplus figure will likely end up being larger.
“There are a few storm clouds on the horizon, but we know our revenues are running strong,” said Sen. John Arthur Smith, D-Deming, chairman of the LFC.
Most of the revenue windfall is due to an oil boom in the Permian Basin that has been driven by improvement in drilling techniques and production methods and has made New Mexico the nation’s third-highest oil producing state.
Already, the state’s cash-flush revenue situation has allowed lawmakers to authorize an unprecedented $663 million spending increase for the budget year that started in July – or roughly 11% over previous levels – during this year’s 60-day legislative session. Roughly two-thirds of that amount is going toward salary increases for teachers and other types of education spending.
In addition, the $7 billion budget signed into law by Gov. Michelle Lujan Grisham authorizes $389 million in spending for highway repairs and construction around New Mexico.
While Smith cited concern about a possible looming glut of oil production and uncertainties in the international market, he said the state’s budget situation could allow for another big spending increase for the coming year while still keeping cash reserves of 20% or higher.
The record-high revenue levels come just two years after a steep revenue downturn forced lawmakers to cut spending and take money from various state funds.
Royalties, taxes and other direct revenue from oil and natural gas production now make up more than 35% of all revenue collected by New Mexico, and state economists have warned about the historically volatile nature of oil and gas prices.
Lujan Grisham, a first-term Democrat, has touted the need to diversify the state’s economy, calling for increased spending on the state’s film incentive program and more marketing of outdoor recreation offerings.
Meanwhile, some of the budget surplus could be used to shore up the state’s two large public retirement systems, which have sizable unfunded liabilities and have caused national credit rating agencies to express concern.
A task force assembled by Lujan Grisham recently recommended a $76 million one-time state appropriation to help get the pension fund that covers state workers, law enforcement officers and local government employees on more solid financial ground.
However, Smith said Friday that he’s not convinced that a one-time infusion would shore up the pension fund – or a similar retirement fund for teachers and other school workers.
“To really get stability, you’ve got to have recurring spending,” Smith said.
Legislative and executive economists will release new official revenue estimates at a legislative hearing in Red River later this month.