Oil tax revenues in New Mexico, other states spotlight a dependence on fossil-fuel taxes

May 17, 2022

Morgan Lee, Chicago Sun Times | May 17th, 2022NMOGA_External-20.webpSANTA FE, N.M. — Thanks to oil tax revenues, government budgets are booming in New Mexico.

That means teacher salaries are up. New Mexico residents can go to an in-state college tuition-free. Mothers get medical care for a year after childbirth. And criminal justice initiatives are being funded that aim to reduce urban violence.

But being flush with petroleum cash, as New Mexico and other oil-producing states are, also highlights how difficult it can be to turn talk about tackling climate change to action.

State governments in the nation’s top regions for producing oil, natural gas and coal have by far the highest per-capita reliance on fossil fuels — led by Wyoming, North Dakota, Alaska and New Mexico, which is the No. 2 crude oil producer among all states and the top recipient of U.S. disbursements for fossil fuel production on federal land.

This fossil fuel tax revenue bankrolls all manner of public services, from highway maintenance to prisons. In Carlsbad, New Mexico, oil infrastructure property taxes are underwriting a high school performing arts center, expanded sports facilities and elementary school renovations.

None of that would be possible without oil revenue, according to schools superintendent Gerry Washburn.

“We can’t slow down in that area and what we do to fund schools until we have a legitimate replacement” for oil and natural gas income, Washburn said. “Whether you’re in the middle of the oil patch or in an area with no oil and gas drilling going on, those policies are going to impact revenue in every school district in the state.”

Federal, state and local governments receive an estimated $138 billion a year from the fossil fuel industry, according to a study by the Resources for the Future, a nonpartisan Washington economics group that doesn’t take an adocacy position on energy policies. That amount is equal to the yearly state spending of New York and Texas combined.

In every state, the flow of cash for government is dominated by gasoline and diesel retail taxes. But energy-producing states have the deepest dependence on fossil fuel income through a range of taxes, royalties, lease sales and fees.

Because that revenue helps pay for government services, those states tend to tax residents less, according to Daniel Raimi, a fellow at Resources for the Future who is a co-author of the study.

“That’s a really challenging dynamic if you think about a shift away from fossil fuels,” Raimi said. “They’re going to be faced with the question: Do we raise our taxes on our residents, or do we reduce the level of services we provide?”

In New Mexico, oil and gas account for 42% of state government income, a share that’s rising amid the war in Ukraine and record-setting oil production in the Permian Basin that stretches across southeastern New Mexico and western Texas. Additional oil income goes into a new interest-bearing trust for early childhood education.

Soaring fossil fuel industry profits also allowed the Democratic Party-controlled New Mexico Legislature to try to tackle the highest-in-the-nation unemployment rate and persistently high poverty. Lawmakers provided $1.1 billion in tax relief and direct payments of as much as $1,500 per household in a move to offset inflation.

At the same time, legislators balked this year at climate initiatives that might restrain petroleum production. They rejected a bill to limit climate-warming pollution in the production and distribution of transportation fuels, a step West Coast states have taken. New Mexico also shunned a state constitutional amendment for the right to clean air.

Gov. Michelle Lujan Grisham, a Democrat who is up for reelection in November, said her administration is working to contain oilfield methane pollution and diversify the economy. New mandates call for electricity production from solar, wind and other renewable sources. But she has cautioned the federal government against significant restrictions on oil exploration and production, still the lifeblood of the New Mexico state budget.

Preserving income from oil, natural gas or coal production while acting on climate change can be especially tricky in blue states where Democrats often campaign on tackling global warming.

Colorado’s Democratic Gov. Jared Polis is pursuing an ambitious clean-energy plan while trying to preserve $1 billion a year in oil and gas production tax revenue. To justify air pollution restrictions, Polis has cited evidence of climate change, drought and fire.

But Polis, a tech entrepreneur, threatened to veto a proposal last year that might impose per-ton emission fees on polluters. William Toor, executive director of the governor’s Colorado Energy Office, said the state isn’t targeting fossil fuel production — only the industry’s emissions.

On Colorado’s northeastern plains, Weld County Commission Chairman Scott James said state regulations stifle new drilling needed to support production and government revenue, especially for schools. The county is centered on a vast oil field stretching from the Denver area into Wyoming and Nebraska.

“I agree with the overall mission of reducing greenhouse gas,” James said. “But there’s an environment that exists at the state Legislature that we must electrify everything, we must mandate it, we must do it now. And these technologies are not yet ready for prime time. We simply don’t have the capacity to do it.”

Some major petroleum producing states are forging ahead with their climate agendas.

In April, Pennsylvania became the first major fossil-fuel state to adopt a carbon-pricing policy, joining an 11-state regional consortium that sets a price and declining limits on carbon dioxide emissions from power plants.

Democratic Gov. Tom Wolf’s initiative came without approval from the Republican-controlled Legislature in what’s the nation’s No. 2 state for natural gas production and a major exporter of gas-generated electricity. A per-well drilling fee on the state’s booming Marcellus Shale gas industry has rained cash on rural counties and municipalities for nearly a decade.

South of Pittsburgh, Washington County has reaped over $100 million in the past decade. That’s equivalent to $500 per resident — a “game-changer,” said county board chairwoman Diana Irey Vaughan.

Democratic state Rep. Greg Vitali, an advocate for stronger climate change action, said local governments relying on gas drilling money will have to use traditional tools such as property taxes to get by.

Republican-dominated Wyoming, the top coal production state, has bold goals to reduce greenhouse emissions to less than zero even while fossil fuels account for over half its revenue.

That vision relies on eventually capturing carbon dioxide from coal- and gas-fired power plants and pumping it underground, possibly to increase oil production in fields in the middle of the state. Wyoming government leaders are also looking to alternative fuels like hydrogen and nuclear power, using reactors that produce less waste.