For decades, counties in the northwestern and southeastern corners of the state have reaped the rewards of oil and gas production.
Now, as other areas of the state weigh the benefits and costs of more oil and gas development, a new report shows just how dependent all New Mexico counties are on fossil fuel revenues — even those like Santa Fe County that aren’t producers. The report by the New Mexico Tax Research Institute details oil and gas revenues down to the county level and provides a glimpse of the state’s challenge as it tries to diversify its economy without hurting its bottom line.
Santa Fe County, which has effectively kept out oil and gas development through a restrictive ordinance, benefits from production in other counties.
Santa Fe Public Schools, for example, received $81.7 million from the state general fund in 2013. More than $25 million of that money came from oil and gas revenues, according to the report.
In the Pojoaque school district, $3.8 million in state funding was derived from oil and gas. Santa Fe Community College received $3.9 million from oil and gas, and the six charter schools in Santa Fe County, $4.7 million.
Statewide, $1.7 billion of the state’s $5.5 billion general fund in fiscal year 2013 was from oil and gas revenues, according to the report. And of the $218 million for 769 capital outlay projects throughout the state — such as water systems, school buildings and parks — $207 million came from oil and gas production.
The tax report was partially funded by the New Mexico Oil and Gas Association, with data from the state Taxation and Revenue Department, the State Land Office, the Board of Finance and other agencies. Veteran economist Laird Graeser crunched the report’s numbers.
Graeser, a clean energy advocate who powers his own home with solar, noted the revenue report doesn’t address potential downsides of oil and gas drilling, like groundwater pollution, air emissions or water use.
But if the state wanted to phase out oil and gas and switch to cleaner energy, he said, “it still comes down to how would you replace the revenue.”
The state’s dependence on oil and gas presents a tangled set of problems.
When prices decline, as they did in 2008, the state is hit hard in the pocketbook.
In addition, the oil and gas industry uses its hefty cash power to influence state regulations. “They want a golden ticket to be free from common-sense rules to protect air and water. Their attitude is, ‘We pay for everything, so hands off,’ ” said Rep. Brian Egolf, D-Santa Fe.
The state still has plenty of oil and gas reserves to pump and plenty of money to make. So it will take a far-sighted economic plan, and maybe a new tax structure, to transition to a more diversified economy less beholden to extractive industries, Graeser said.
“State government rarely looks more than five years into the future for financial planning,” said Shane Woolbright, a former power plant planner. “So I don’t see oil and gas revenues declining to a great degree.”
If anything, the state’s dependence on oil and gas is likely to grow in coming years as developers broaden their reach into other parts of the state where drilling rigs have been a rarity.
Mora County passed an ordinance banning oil and gas development, which has been challenged in court. While some private landowners on the county’s eastern half want to lease their land for natural gas development, the County Commission and other residents think drilling risks contaminating water resources.
San Miguel County, bordering Mora and Santa Fe counties, is considering a draft ordinance that hedges its bets. It would prevent oil and gas development on the west side, which provides most of the water to Las Vegas and nearby villages. But it would allow oil and gas development on the county’s southeast side in the Canadian River Basin. “We’re looking at an ordinance that will be very restrictive, but as far as I’m concerned will allow some development,” said Nicolas Leger, a San Miguel County commissioner.
He doesn’t expect the county to see much in the way of direct revenues. But indirectly, it could mean jobs. “We haven’t seen much economic development in this area in decades,” Leger said. “There is that potential benefit, and I don’t think we can ignore it.”
San Miguel County will hold public hearings on its draft ordinance in the next few weeks.
Meanwhile, even longtime oil and gas pumping counties are struggling to protect some areas as drilling expands. Rio Arriba County is already a top natural gas producer in the state. Graeser said the gas is particularly valuable because it is high in butane and propane. But recently, 16 parcels of land in the Chama River Basin were removed from an oil and gas sale over concerns from the community about potential impacts on water.
In 2013, Rio Arriba shipped out 1.1 million barrels of oil worth $83 million and 303 billion cubic feet of natural gas valued at $1.3 billion. Rio Arriba County made $14 million in production and equipment taxes and $1.9 million in gross receipts taxes.
New Mexico was blessed with plenty of oil and gas. It’s the sixth top producing oil state in the nation, according to the Energy Information Administration. The San Juan Basin in the northwest corner of New Mexico has one of the largest natural gas reserves in the world, according to the Bureau of Land Management.
The state also is blessed with plenty of sun and wind, both capable of making electricity.
But while the state has devised ways to tax oil and gas multiple times and enjoy the revenues, it hasn’t figured out how to do the same with solar and wind to nearly the same degree, Graeser said.
The state had a chance to diversify its tax structure, revenue streams and energy resources in the 1980s. “We made a strange decision to just build on the back of oil and gas,” Graeser said.
Oil and gas producers pay fees to lease land for drilling and pay royalties on each barrel and cubic foot of hydrocarbons they pump out of the well. They’re taxed at the well head by the state, and if the energy is used for electricity, there’s another tax.
In addition to the $1.7 billion that went into the general fund in 2013 from oil- and gas-related activities, including corporate and personal income taxes from related jobs, the industry paid another $420 million in severance taxes, $500 million in royalties and more than $200 million in production and equipment taxes, which go directly to oil- and gas-producing counties, according to Graeser’s report.
Oil and gas revenues from more than 9 million acres of state trust land built and continue to sustain the Land Grant Permanent Fund, with revenues going to the state’s public schools, hospitals, universities and other beneficiaries. In the period between 2009 and 2013, oil and gas fees and bonuses contributed $2.5 billion to the fund. By comparison, solar and wind generated just $232,000.
Oil and gas revenues account for 86 percent of the Severance Tax Permanent Fund, which provides money for public capital projects. In 2013, producers also paid $419 million to the severance tax bond fund, which paid the debt service on capital project bonds. Established in 1973, the severance tax is charged on natural resources as they are pumped or mined out of the ground.
At the same time, while oil and gas companies receive federal tax subsidies, they receive none from the state, Graeser said.
Graeser said given the way the state has structured taxes, there’s now little room to maneuver if the state wants to wean itself off oil and gas revenues. He said there’s no way to tap gross receipts taxes for more money. That leaves tax reform. “Tax reform is really, really hard,” he said. “The screams of the losers are far louder than the huzzahs of the winners. And legislators respond to the screams.”
Lawmakers from oil- and gas-producing counties have complained over the years about that money benefiting nonproducing counties like Santa Fe.
But oil and gas production doesn’t make economic sense for some counties. Aside from government jobs, Santa Fe County and the city of Santa Fe have economies built on art, culture and tourism. “It would be a competing use to have oil and gas,” Egolf said. “You really can’t have people coming for quiet beautiful vistas if they are covered in pump jacks.”
In addition, the county wouldn’t benefit much more financially if there was oil and gas development, Graeser said. If a company looking to drill in the Galisteo Basin had produced 10,000 barrels of oil a year, it wouldn’t have added much to the county’s coffers. It made more economic sense for Santa Fe to protect its water and landscape for tourism, he said.
Egolf thinks Graeser’s report may overstate the impact of oil and gas on the state’s budget. Regardless, he said, “it is imperative for New Mexico to diversify its economy because we can’t be dependent on a single industry.”
New Mexico has plenty of wind, solar and geothermal to power the state, according to estimates from clean energy advocates. But even if that happened, the shift wouldn’t likely affect the amount of oil and gas produced.
“There is very little likelihood that demand for the oil and gas from New Mexico will decline because our output goes out of state to a great degree,” Woolbright said.
Even environmental activists such as Mariel Nanasi of the Santa Fe-based New Energy Economy understand a transition away from oil and gas will take time. “I don’t advocate not having oil and gas,” she said. “But I think it is prudent to develop other sources of income and, very importantly, jobs.”
That transition could begin with powering all public schools and other government buildings in the state with solar, Nanasi said. Such a move would provide jobs and reduce energy costs for the public sector over the long haul, even if it didn’t generate a lot of revenue for state coffers.
“We have to look at a systemwide economy and not just the short term,” Nanasi said. “If we are to be looking into the future, we need to be looking at other sources of energy that will be good for the economy and the environment.”
Contact Staci Matlock at 986-3055 or email@example.com. Follow her on Twitter @stacimatlock.