Oil boom may provide windfall to New Mexico, public schools

Aug 28, 2018

Morgan Lee | Associated Press | August 22, 2018 

SANTA FE - A surge in New Mexico’s income linked to an oil boom may give legislators an extra $1.2 billion to work with as they craft the next annual budget, state economists announced Wednesday.

The windfall comes as New Mexico officials grapple with a court order to shore up funding for public schools to meet basic educational standards and a recent downgrade to the state’s credit rating based on mounting public pension liabilities.

Economists from three state agencies and the Legislature reported a nearly 15 percent increase in general fund revenues for the fiscal year that ended June 30 — a growth rate the state has not seen in more than a decade. Oil production gains on relatively high energy prices are expected to continue, driving continued growth in state government income, the forecast stated.

Tax revenue and other government income is expected to surpass annual spending obligations by $1.2 billion during the fiscal year that begins in July 2019, according to a report from staff at the Legislature’s lead budget-writing committee. General fund spending for the current fiscal year is set at $6.3 billion.

The income outlook marks a sharp turnaround in state finances. A little more than a year ago, Gov. Susana Martinez and state lawmakers scrambled during a special legislative session to close a budget gap linked to the lingering effects of a downturn in oil prices.

Forecasters warned that the current fiscal windfall stems largely from a rebound in the state’s volatile oil industry, and that income from taxes and royalties could quickly erode again with a crash in energy prices.

Jon Clark, chief economist for the Legislative Finance Committee, called the spike in oil-based income to the state unprecedented.

“We’re relying on the oil industry more now than we ever had before,” he said at a legislative committee hearing in Taos on Wednesday.

Staff economists for the Legislature are recommending that lawmakers set aside reserves equal to 20 percent of annual general fund spending obligations and restore money to state accounts that were depleted after the 2016 oil bust. The state still should have additional money at its disposal, they said.

Charles Goodmacher, a spokesman for the New Mexico chapter of the National Education Association union for teachers and school staff, said the sunny revenue outlook comes at a crucial time for public school districts, which rely on the state for the vast majority of funding.

“It’s a perfect coincidence of timing with the court decision saying more has to be spent on the public schools, with this surplus that allows for that to take place,” Goodmacher said.

A state judge ruled in July that New Mexico was violating the rights of students by failing to provide adequate overall funding for public schools — neglecting in particular students from low-income and Native American families — without specifying how lawmakers and the executive branch should address the issue.

The decision has been appealed by the administration of Gov. Martinez, who cannot run for a third consecutive term in fall election. Democratic gubernatorial candidate and Congresswoman Michelle Lujan Grisham said she would drop the appeal if elected and work with legislators to address the court injunction. The Republican nominee for governor, Steve Pearce, has said little about his approach to the court order.

New Mexico devotes about 45 percent of annual general fund spending to public education.

Democratic Sen. John Arthur Smith of Deming said swaths of the state continue to grapple with economic difficulties, despite the rebound in state government income.

“We’ve got pockets of New Mexico that are not doing well, not doing well at all,” he said.