New Mexico projects $2.45 billion budget windfall

Aug. 17—CHAMA — Money might not grow on trees, but in New Mexico it comes out of the ground.

Driven in large part by the booming oil and gas industry, projected revenues for the next budget year are expected to deliver another windfall to state government coffers.

Recurring revenues for fiscal year 2024 are projected to reach a record $10.85 billion, including $2.45 billion in "new money," according to a budget forecast presented Wednesday to the Legislative Finance Committee.

So-called "new money" is music to legislators' ears.

It is the difference between the current budget and expected revenues in the next fiscal year, and it opens the door to a host of possibilities, from infrastructure investments to more tax cuts or rebates.

Oil and gas accounts for about two-thirds of the projected revenue growth amid higher prices and continuing increased production.

In May, New Mexico's oil production was up 41.4 percent from January. Texas' was down 8.2 percent and North Dakota's was down 25 percent.

Oil production in the state is projected to grow 4.5 percent in the next budget year.

"New Mexico continues to hit records, with the latest peak production of 1.57 million barrels per day in April 2022," the budget forecast states. "To date, New Mexico is the only top oil producing state to have recovered above prepandemic production levels."

On top of the surge in oil and gas production and higher prices, inflation is driving up gross receipts tax collections as a result of rising costs for food, construction materials and other goods and services, as well as personal income taxes linked to higher wages.

"Revenue strength is the result of sustained high inflation raising expectations for gross receipts tax and income tax collections," state economists wrote in their budget forecast. "Additionally, consumer spending has remained strong, wage growth has been robust, and high oil and gas revenues are supported by global supply-side constraints raising prices and encouraging production expansion."

The forecast, however, warns of "significant uncertainty" in the economic outlook.

"The recent and forthcoming monetary policy from the Federal Reserve could significantly slow economic growth as rising interest rates dampen economic demand. On the other hand, a failure to slow high inflation rates would discourage consumer sentiment and erode real purchasing power of households and firms leading to a downturn. The coronavirus continues to add uncertainty as new strains impact consumption, disrupt supply chains, and prevent employment recovery," the economists' report states.

For the current fiscal year, estimated recurring revenues are nearly $9.85 billion, or $1 billion more than projected in December. That's money that will also be on the table when the governor and the Legislature hammer out a spending plan in 2023 for the next fiscal year.

Ending reserve balances for fiscal year 2023 are estimated at $3.76 billion, or nearly 45 percent of appropriations, "prior to any legislative action in the 2023 session," according to the economists' report.

"Because reserves are expected to exceed 25 percent of recurring appropriations in FY23, excess oil and gas school tax collections, estimated at about $1.25 billion, will flow into the Early Childhood Trust Fund," the report states. "Additionally, excess federal oil and gas royalty payments above the five-year average, estimated at about $1.35 billion in FY23, will flow into the early childhood trust fund."

Preliminary reports indicate recurring revenues for fiscal year 2022 were $9.2 billion, an increase of $1.1 billion, or 14 percent, from fiscal year 2021, according to the Consensus Revenue Estimating Group, a collection of economists from three state departments and the Legislative Finance Committee.

This is a developing story. Stay tuned for updates.

Follow Daniel J. Chacón on Twitter @danieljchacon.