New Mexico’s budget surplus was higher than expected in the first nine months of the current fiscal year, as the oil and gas production boom in the Permian Basin pushed revenues to exceed forecasts.
The state’s general fund collected $5.98 billion in revenue in the nine months between July and March 2019, a $1.36 billion increase from the same period a year earlier, according to a report released Tuesday by the Legislative Finance Committee. That’s about $290 million above a December 2018 forecast, the report said.
The extra windfall provides an opportunity for lawmakers to fund a number of projects in the next legislative session, such as improving roads, making structural changes to the state’s public retirement systems or creating an endowment fund for early childhood education, said state Sen. John Arthur Smith, D-Deming, who chairs the Legislative Finance Committee.
Legislators also could approve an income tax rebate for New Mexicans, Smith said.
“We knew that revenues were going to be astronomically high,” Smith said in an interview Tuesday. “Trying to spend it in a responsible fashion that gets results will be the challenge for the next legislative session.”
The oil and gas boom allowed Gov. Michelle Lujan Grisham to sign the largest budget in state history in April, at $7 billion, which included an 11.6 percent increase in spending and kept reserves at 20 percent. Lawmakers already had expected another surplus in 2019, with Smith projecting earlier this month that a windfall of $1.1 billion to $1.3 billion would occur barring any sharp decrease in global oil prices.
A boom in oil production in southeastern New Mexico largely has driven the higher-than-forecast surplus. Rents and royalties from oil and gas accounted for 47 percent of the increase in revenue compared with last year, according to figures in the Legislative Finance Committee’s report.
New Mexico’s oil output was 67 million barrels this fiscal year through March, a 46 percent increase from the prior period, while natural gas output rose 20.2 percent during the period, according to the report. A consensus forecast in December 2018 expected oil production would grow 22 percent and gas production would increase 8 percent.
New Mexico oil was priced at $55.31 per barrel in March, which was $2.84 per barrel below the average West Texas Intermediate price that month. That price differential widened to about $5 per barrel in May and June as increases in production outpaced new pipeline capacity, the report said.
Oil prices rose Tuesday after an American Petroleum Institute report said U.S. inventories had dropped more than expected, according to Bloomberg News. West Texas Intermediate for August delivery rose 1.5 percent, or 87 cents, to $58.77 at 4:59 p.m. on the New York Mercantile Exchange.
Smith cautioned that legislators should prioritize one-time spending to fix structural problems over funding for recurring programs because revenues are unlikely to remain this high in the future. He also said the state needs to set aside funds for its reserves after it saw multiple budget cuts during the Great Recession.
“Obviously we’re glad to have the revenue, but it presents another challenge, which is to prepare for another downturn,” Smith said. “When the bubble pops, you’ve got a problem.”
Smith said he expects some lawmakers to push for a tax decrease, but he would instead favor a one-time income tax rebate for 2019.
“We could possibly refund to the public,” he said. “We have to be careful not to put it into the recurring stream.”
New Mexico also posted positive employment figures in April. Job growth was 1.5 percent that month, compared with April 2018, the highest year-over-year growth since December 2014. The state’s unemployment rate fell by 0.1 percent to 5 percent in April, and the state added 13,000 jobs that month compared with April 2018.