Mocobizscene– A windfall of government income from petroleum production is gradually decreasing in New Mexico, the nation’s second-largest oil-producing state. However, the state is still faced with the challenge of determining the appropriate amount to spend and allocating billions of dollars for the future in case the global demand for oil declines.
According to a recent forecast, New Mexico is expected to have a surplus of $3.5 billion in its general fund for the fiscal year ending in June 2025. Over the past three years, the state’s annual government income has increased by nearly 50%, primarily due to the booming oil and natural gas production in the Permian Basin. This region, which spans across southeastern New Mexico and parts of western Texas, is known for being the most productive shale-oil producing area in the United States.
The economists from four state agencies presented to a legislative panel that the state is projected to generate a record-breaking $13 billion, surpassing its annual spending obligations by one-third. According to the forecast, the state government income is expected to grow by 2.2%, building on the already impressive 10.2% growth achieved during the current budget year.
The government income estimate serves as a starting point for budget discussions as the Democratic-led Legislature gathers in January. It also highlights the need to allocate funds to safeguard essential programs during periods of reduced oil revenue. The forecast predicts a decline in federal payments due to a decrease in oil production and lower prices, signaling potential financial challenges in the coming years.
According to the report, global demand for oil is expected to decline in the coming years, resulting in a steady decrease in oil income by the end of the decade. This decline is likely to have a negative impact on revenue growth, as oil becomes a less profitable source of income.
Daniel Raimi, a fellow at the Washington-based nonpartisan economics group Resources for the Future, expressed concerns that Permian Basin production and revenue could be negatively affected in the future if countries fulfill their commitments under the Paris Agreement. The agreement, signed by countries at the United Nations climate conference in 2015, aims to limit global warming to “well below” 2 degrees Celsius (3.6 F) and strive for a more ambitious goal of capping warming at 1.5 degrees (2.7 F). However, Raimi emphasized that his organization does not advocate for specific energy policies.
According to Raimi, the effectiveness of government policies plays a significant role in shaping the outcome of various situations worldwide.
Approximately 50% of New Mexico’s general fund revenue can be attributed to the oil and natural gas industry. This significant contribution comes from various taxes and royalties imposed on petroleum production, predominantly occurring on public lands. Additionally, the state benefits from distributions stemming from the $28 billion land grant permanent fund for education, which is sustained by income from oil and gas operations as well as investment earnings.
The economy of New Mexico heavily relies on global decisions pertaining to renewable energy production, the adoption of electric vehicles, and the exploration of new applications for nuclear power. These factors play a crucial role in reducing the dependency on fossil fuels and shaping the state’s financial stability.
The state of New Mexico is actively seeking alternative sources of revenue in order to reduce its reliance on oil. Governor Michelle Lujan Grisham recently proposed a $500 million initiative that aims to protect freshwater aquifers by funding the treatment of fracking wastewater. However, some skeptics worry that this plan may inadvertently lead to an increase in petroleum drilling activities.
“We have invested a significant amount of money in funds,” Lujan Grisham shared during her attendance at the U.N. climate conference in the United Arab Emirates, where there has been a strong emphasis on the need to transition away from fossil fuels. “However, it is equally important to establish reliable sources of revenue that can contribute to these funds.”
The increase in government revenue has enabled the state to expand agency budgets, reduce taxes, and provide additional assistance to families. This has also led to an increase in spending on public education and colleges, which make up approximately 58% of the state’s annual general fund expenditure.
In numerous cases, the funds allocated are more than what school districts and state agencies can effectively utilize. This situation arises as lawmakers strive to raise average high school graduation rates and academic achievement to match national standards.
Charles Sallee, director of the Legislature’s budget and accountability office, highlighted the availability of resources for enhancing teacher salaries, afterschool programming, and tutoring support. However, he emphasized that the challenge lies in the bureaucracy’s capacity to effectively organize and utilize these resources.
Tempers flared during a recent legislative hearing focused on the state’s expenditure on public education and the lack of progress in average student performance at public schools.
According to recent data, only 38% of students in the state are able to read at their grade level, while math proficiency stands at a mere 24%. These figures highlight the concerning educational gap within the state, with the high school graduation rate currently at 76%. This rate falls significantly below the national average of 87%. It is clear that there is a pressing need for improvement in the state’s education system to ensure better outcomes for its students.
According to Democratic state Sen. George Muñoz of Gallup, who serves as the chairman of the lead state budget-writing committee, funding is on the rise despite a decline in the student population.
Muñoz expressed concern about the increasing costs for children without seeing significant improvements. He questioned the steps that need to be taken to make progress.
New Mexico’s early childhood education trust, established in 2020, currently possesses approximately $6 billion. Its purpose is to protect the ambitious plan of expanding public preschool, providing free child care, and offering home nurse visits for infants.
Legislators made a significant decision last year by allocating $150 million to a newly established land and water conservation fund. Additionally, they agreed to direct a larger portion of funds from oil and natural gas towards a savings account designated for construction projects. The aim is to accumulate a total of $3 billion by the year 2027.
Legislators continue to strive for the establishment of new savings accounts. A new proposal has surfaced, aiming to allocate $100 million to a trust dedicated to Native American education, with a specific focus on Indigenous language instruction. This initiative would benefit 23 tribal communities in New Mexico, including the Navajo Nation.
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