SANTA FE, N.M. (AP) — State economists on Friday revised upward forecasts for state government income amid surging oil and natural gas production in New Mexico, giving lawmakers greater leeway as they begin crafting a general fund spending plan for the coming fiscal year.
Most of the windfall is linked to steadily growing oil and natural gas production focused in the Permian Basin that straddles the state line between New Mexico and Texas.
Economists from three state agencies and the Legislature said state general fund income for the coming fiscal year that begins on July 1, 2020, is expected to surpass current annual spending obligations by $907 million. That represents a nearly 13% surplus over current spending levels.
The fiscal forecast, announced at a legislative committee hearing in the mountain resort community of Red River, holds major financial implications for public school budgets, tax incentives for filmmakers, infrastructure spending and an array of state government services.
Legislators and first-year Democratic Gov. Michelle Lujan Grisham are grappling with efforts to expand economic opportunity in a state with the highest rate of poverty in the western U.S. and to improve the quality of public schools, after a district court ruled that the state was failing to provide most students with an adequate education.
Together this year they authorized a $448 million increase in annual general fund spending on public schools — a 16% increase to $3.3 billion. Public education spending now accounts for nearly half of general fund spending.
“I look at this money and see that we should have the opportunity to make continued substantial investments in education and infrastructure,” Democratic House Speaker Brian Egolf said. “That means we can continue making big investments in K-12 education and we can do it with information about how the previous appropriation money was spent, where it was done right, where we need to do it a little differently.”
State reserves would swell to $2.3 billion by next July if spending remains stable — a financial buffer against a fiscal or economic downturn equal to more than 30% of annual general fund spending.
State revenue from taxes on sales and services is expected to increase by 9% during the current budget year that began July 1 to $3 billion. The increase is tied primarily to oil-producing counties in the southeast of the state.
The outlook comes with warnings of budgetary risks as state dependence on the oil sector increases. Annual oil production that averaged 70 million barrels between 1980 and 2010 is approaching 350 million barrels this year.
“The results of a sharp decline in oil prices and production activity could create a fiscal challenge far more severe than a moderate recession,” an analysis from Legislative staff warned.
New revenues are needed to underwrite a major increase in tax rebates to the film industry approved this year by lawmakers in an effort to boost industry growth and employment.
Those reforms raised the annual cap on most film tax rebates to $110 million, while the credits are unlimited for companies including Netflix and NBCUniversal that have committed to sustained film activity in the state. The tax rebate can be worth up to 35 percent of production expenditures for New Mexico vendors and resident employees.