The bare facts about oil and gas in New Mexico

By JOSE GARCIA
Guest Columnist

By any standard, in the past decade oil production in New Mexico has attained world-class stature. In 2023, New Mexico was producing about 1.8 million barrels per day (657 million barrels that year) of crude oil, 10 times more than it was producing in 2010, thanks to investments in new fracking technologies.

This quantity places New Mexico just about even with the oil-rich countries of Mexico, Kazakhstan, and Norway, and slightly above Nigeria and Qatar. If New Mexico were a nation it would rank about 14th in the world in oil production, well above the OPEC countries of Libya, Algeria, and Venezuela. Visionary as they might have been, it seems unlikely that Mary and Martin Yates, thrilled by the gushing black liquid at Illinois #3 in Spring of 1924, could have imagined that exactly one century later their descendants would still be drilling in a New Mexico now producing more oil than Qatar.

New Mexico gross domestic product in 2023 totaled about $130 billion. About one-fifth of this amount — $26.1 billion — was generated by the oil and gas industry. According to the New Mexico Tax Research Institute, total state and local government spending in 2023, including federal transfers, added up to about $26.2 billion, out of which slightly more than half ($13.9 billion) came from direct and indirect taxes collected from the oil and gas industry.

Most taxes collected on oil and gas are placed into the General Fund, which also includes revenues from income, corporate, and other taxes and fees. General Fund money is used to fund the annual state government budget: schools and colleges, health care, public safety, etc. Other chunks of oil and gas taxes are placed into various funds to pay for roads; for local operating, and state and local capital expenses; to bolster state reserves; and to add to various permanent funds designed to accumulate state monies against the day when extractive industries have been depleted as significant sources for state revenues.

In 2023 the general fund contained $14.98 billion when the legislature convened. Fully half of this amount, $7.5 billion, was collected from oil and gas, according to the Tax Research Institute. The other funds received $6.4 billion in oil and gas taxes and fees. The same source asserts that oil and gas taxes paid for nearly 58% of 2023 expenses for public and higher education. Twenty-seven percent of all state expenses for health and human services came out of oil and gas, and six percent of public safety expenses. Truly, in recent years state government spending has dramatically increased its reliance on revenues from oil and gas. By contrast, between 1998 and

2008 energy-related revenues averaged only about 16% of the General Fund. From 2011 to 2021 they averaged about 33%. In 16 years, the proportion of the state budget reliant on oil and gas has more than tripled.

The oil boom will not last forever. Given that the state is hardly a paragon of excellent government management, there is an urgency to use these generous petrodollars to fix what needs fixing.

Most New Mexicans outside of the Oil Patch — San Juan County is included because of its huge production of natural gas and oil — appear not to have absorbed the full magnitude of the oil and gas bonanza. Most are vaguely aware of increased oil activity in the east side, but few of us have any idea of the massive scales or spreading impacts from this surging tide of cash. Consequently, citizens have largely left the management of these new riches up to the New Mexico Legislature and executive branch, with little commentary or debate, much less public pressure about how to spend it. Likewise, the governor’s office and legislative leaders have made few serious remarks about what they might propose to do in the future with the most massive influx of tax dollars in the state’s history. But if they hadn’t thought this through, they have not neglected to spend the money.

Do you remember? This is the legislature, and the political class that surrounds it, that has managed New Mexico into last place in education; that is doing little to stem the obvious decline in health care; that has yet to muster our prevailing institutions into a robust effort to manage our water resources, dwindling relentlessly over the past two decades; that tolerates growing levels of public corruption and ignores persistent insults from a criminal class in Albuquerque growing faster than recent oil production stats in Lea County. Virtually no one believes the billions of NEA-driven, non-accountable new dollars for education will lift the state one centimeter above our last-place standing. We’ve seen this movie before.

Politics in the oil patch one century later

If the Oil Patch is generating more money than the average Arab oil-sheikdom, the political power of those who live there has not improved with all that extra cash. In fact, it may be shrinking.

The east side is not building 100-story skyscrapers in Hobbs, or creating a competing global organization for professional golfers, or sponsoring Formula 1 racing events, and the like, as is the case, say, in Dubai. Ninety percent of the land producing oil is owned by the state or federal government. By far most of the companies producing oil in New Mexico are headquartered in Texas, and it is unclear just how much of the revenue generated by oil production stays in New Mexico or in New Mexican hands. What we do know is that the state of New Mexico is now raking in more tax money each year than any of the general fund budgets signed by Gov. Michelle Lujan Grisham through this year. And census data shows the east side poverty rate (18.2%) is right at the state’s average (18.4%).

One in five of us lives in poverty.

The vastly improved efficiency in oil extraction has reduced the demand for labor on the east side. The population of the east side is in relative decline, reflected in a decline in the number of legislators from the region, reducing the region’s political clout. Three decades ago, the southeast corner normally contributed 15-17 percent of the vote in a statewide election. In those days, the east side vote — conservative to the core — easily matched the reliably liberal vote of Hispanic north. Today the east side struggles to produce 13% of the statewide vote, while the Hispanic north has maintained its proportion at about 16%. The southern congressional district (CD2) was held by east-siders from the early 1970s until 2018. In 2022 the legislature gerrymandered CD2 to include large sectors of Albuquerque, making it difficult for someone from the east side to be elected for that job. This was not an accident.

If the Tax Research Institute is correct, the $13.9 billion collected in taxes last year from oil and gas, if divided equally to every living person in the state, would amount to about $6,575 per person. The share for a family of four would be $26,300. A fair question to ask is, does that family of four get that much value each year from the extra cash state government spends?

Experience over the past century shows that countries that rely heavily on oil revenues to fund government are highly prone to public corruption: look up corruption ranking scores for Russia, Libya, Nigeria, Mexico, Venezuela, Iraq, and Iran. They are also highly prone to neglecting investment in solid infrastructures for economic development in the future when oil revenues have depleted.

The time is ripe for all of us to ask these questions of our governor and our legislators. Mary and Martin Yates, Tom Flynn, and Van S. Welch, if they were here, would surely join the crowd in asking.

(EDITOR’S NOTE: Jose Z. Garcia taught politics at New Mexico State University for more than three decades and served as Secretary of the New Mexico Higher Education Department for four years.)