Politicians won’t slow the industry but must eventually diversify funding, economist says
The oil and gas industry is excelling in New Mexico, leading to significant money for the state and public education. But the industry operates in a boom-and-bust cycle, and education and environmental advocates say officials need to find ways to diversify this revenue so the state and its schools don’t suffer in bust years.
Oil and gas usually generates over $2 billion for the state, making up 25% to 30% of New Mexico’s General Fund, according to the Legislative Finance Committee. That’s where public schools pull most of their funding. Oil and gas money also flows to the Land Grant Permanent Fund, another source of public education revenue.
Public schools typically get over $1.4 billion from the industry, according to a 2021 New Mexico Oil and Gas Association report
Higher education also benefits from these extractive industries, which generated over $262 million for institutions throughout the state in 2021, according to the report. UNM campuses alone received more than $100 million.
Oil and gas has been a point of debate with the General Election just a month away, especially within the gubernatorial race. Amber Wallin, executive director of New Mexico Voices for Children, said issues in education funding go beyond any one election, and officials and New Mexicans need to think about how they can best set up future generations.
“We have massive needs in our state and in our schools, in our families that are really generational problems to solve. They’re not election-cycle problems to solve,” Wallin said.
When the oil and gas industry isn’t doing well, education is underfunded, Wallin said, and there’s a general unwillingness to invest in schools because of the revenue’s instability.
“So what we really need to see,” she said, “is long-term, consistent, significant investments in our classrooms and in our kids and in our teachers, to really see those educational outcomes begin to improve.”
Boom. But then bust.
The state is heavily reliant on what Wallin described as “a volatile stream of revenue.”
Cyclically, there are big years with major demand and rising prices — like the state is seeing now — that lead to low years of overproduction. Economist Kelly O’Donnell said these busts are just as severe as the booms for the state and should be kept in mind, especially given that state obligations such as public education depend so heavily on that revenue.
O’Donnell has worked for the state and federal government on public finance around natural resources. She said although there are benefits to the state’s successful oil and gas periods — like New Mexicans paying lower taxes — the state can’t really control the industry. Factors like the war in Ukraine, how the Organization of the Petroleum Exporting Countries regulates fossil fuel and rates, and even the weather can sway the industry’s success for good or bad, she said.
“We’re relying on it for public education, health care, public safety — all of these things we really can’t afford to have uncertainty about,” O’Donnell said.
The state has attempted to stabilize the revenue but needs to continue diversifying funding, O’Donnell said. One way the state has tried to control funding is through the General Fund reserves, which act as safeguards during shortfalls of revenue, according to the Legislative Finance Committee. When there’s excess oil and gas revenue, some of it goes into the reserves. In 2021, the school tax on oil and gas companies generated $335 million for the stabilization reserve.
During the last legislative session, lawmakers approved a record budget due to a surplus of billions in oil and gas revenue. And Rep. Christine Chandler (D-Los Alamos) said the Legislature could approve a few billion more dollars in state funding in the next session, with two-thirds of that projected revenue coming from oil and gas.
Still, she stressed the need to generate other revenue.
A costly climate crisis
Jeremy Nichols is the climate and energy program director of WildEarth Guardians. He said the industry costs the state more than people think, not just in terms of money. He pointed to the negative effects on New Mexico’s land and people’s health. Just the ozone pollution produced, he said, leads to smog and can trigger health issues that can send people to the hospital.
“Those costs are borne by New Mexicans and not by the oil and gas industry, not by oil and gas companies,” Nichols said. “And unfortunately, those costs are not factored into assessments of whether the oil and gas industry is truly delivering for the state of New Mexico.”
Oil and gas companies are also worsening the climate crisis, Nichols said. Production in the state, he added, causes major carbon dioxide and methane leaks. And when it’s shipped out of state and burned and consumed, it contributes greatly to pollution and global warming, he said.
“They’re the ones fueling the crisis,” Nichols said. “They’re fueling the problem.”
After the largest wildfire in the state’s history roared through northern New Mexico this summer amid a historic drought in the southwest, Wallin said the state needs to take a serious look at its own contributions to climate change — which intensifies and multiplies wildfires — and how New Mexico is getting revenue.
O’Donnell said she suspects that global warming will eventually force the state to wean off oil and gas. “I think the consequences of climate change are really going to necessitate a rethinking of a lot of how we power the U.S.,” she said.
Oil and gas won’t be around forever
Oil and gas is a limited resource. According to the Millennium Alliance for Humanity and the Biosphere at Stanford, oil will run out in 30 years and gas in 40, though there are about 50 years’ worth of reserves left that have already been extracted when current consumption rates are factored in.
This limited supply is why diversification is necessary, O’Donnell said.
“Although this election isn’t going to impact oil and gas production in New Mexico, being prepared for a future with less oil and gas is really important,” O’Donnell said.
The transition away from fossil fuels won’t happen overnight, Wallin said, but needs to happen nonetheless.
“That’s critical to not just our state’s financial stability, and to stability and adequacy for education funding, but it’s also critical because we know that long-term that the oil and gas industry will not be around forever,” Wallin said.
But given how successful the industry is right now, some disagree with weaning off of it. One argument against limiting oil and gas production in New Mexico is that it will hurt schools in the short-term. Catherine Brijalba, a sixth-grade teacher in Lea County, said in an op-ed in the Santa Fe New Mexican that without oil and gas revenue, schools would lose significant funding, and her students’ parents would lose their jobs.
But Wallin said there are other ways the state can raise money for public education. For example, she said, a more stable form of revenue could stem from making sure that wealthy individuals are paying their fair share of taxes. O’Donnell suggested that renewable energy production could also generate money and jobs for the state.
Source NM talked to University of New Mexico students on its main campus about their thoughts on oil and gas funding in higher education, and many weren’t sure how $100 million at UNM could be replaced.
David McCreath, an art student applying for graduate school at UNM, said the state should be pulling away from fossil fuel usage. Reducing federal governmental subsidies would mean oil and gas costs more for everyone and could lessen usage overall.
But it’s difficult to do, he said, because the U.S. is so dependent on it, from driving cars to funding education, like at UNM.
“It’s a public university. It’s intended to be affordable and accessible to everyone,” McCreath said. “$100 million is not nothing.”
Math major Raul Martinez said free education is more important to him than decreasing oil and gas production at the end of the day.
But freshman Chloe Dugan said UNM either shouldn’t accept that money or use it to emphasize Indigenous voices, the third-leading ethnicity at the university, because of harms and disruptions by the industry on tribal land.
She said it’s a good idea to move toward renewable energy sources but that the state should be careful, because those companies will “lust for money,” just like oil and gas companies.
Gov. Michelle Lujan Grisham and Public Lands Commissioner Stephanie Garcia Richard are at least making strides to use renewable energy resources, as well as protect the land, O’Donnell said.
“If those two were re-elected, there would be a stronger emphasis on responsible land stewardship than there’s likely to be with their opponents,” she said.
Still, she said, “Nobody is going to change, again, the amount of money we’re getting in revenue from oil and gas.”