[New Mexico’s reliance on oil and gas makes it extremely
vulnerable to the industry’s boom and bust cycle, and has not led to
good outcomes in education and social welfare. Now some of New
Mexico’s leading economists say it’s time to change course.]
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NEW MEXICO’S ECONOMISTS: “LIKE IT OR NOT, WE’RE AT THE TAIL END
OF THE FOSSIL FUEL AGE.”  
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Jerry Redfern
January 6, 2021
Capital and Main
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_ New Mexico’s reliance on oil and gas makes it extremely
vulnerable to the industry’s boom and bust cycle, and has not led to
good outcomes in education and social welfare. Now some of New
Mexico’s leading economists say it’s time to change course. _

Natural gas flares at a natural gas facility south of Carlsbad, in
southeastern New Mexico. Carlsbad is a leading producer of oil and
natural gases in the region. , Algernon D’Ammassa/Las Cruces
Sun-News

 

LATER THIS MONTH, NEW MEXICO LAWMAKERS will have another chance to
fix an economic problem that has plagued the state for decades.

“For at least 40 years people in the state government and the
Legislature have known that they are overly dependent on oil and gas
for state revenue,” says Jim Peach, regents professor of economics
at New Mexico State University.

Right now, more than 40% of the state’s income relies on the
boom-and-bust fortunes of oil and gas. Now, according to a trio of New
Mexico’s leading economists, the time has come to change course.

“Like it or not, we’re at the tail end of the fossil fuel age,”
Peach says. “We really are.”

The industry itself was already rethinking its future when COVID-19
wreaked havoc with oilfield jobs and revenues. The biggest oil and gas
companies in the world — some of which have huge holdings here in
New Mexico — are protecting themselves against impending changes in
the marketplace by diversifying their portfolios and investing in wind
and solar. BP is investing in electric charging stations in China, for
example, and Shell is selling its refineries as it works to become
carbon neutral by 2050. “They can see the handwriting on the
wall,” Peach says.
 
Worldwide, economies are ever-more-rapidly turning from fossil fuels
to renewables, as green technologies become cheaper and the
consequences of climate change more dire. 

That change is stark as New Mexico faces yet another season of extreme
drought, decreasing water resources and heightened risk of wildfires.
And what gets drilled out of the ground and taxed here exacerbates
these problems.

And if New Mexicans are to weather these changes, too, the state
government needs to change where it gets its money — and break its
resource curse.

*  *  *

IT’S NOT LIKE NEW MEXICO’S RELIANCE on oil and gas has led to
great outcomes in education and social welfare: The state is
constantly at the bottom of national development lists. Child poverty?
49th place. Overall poverty? 50th place. Overall school system? 50th
place.
 
New Mexico isn’t the only place where a boom-and-bust economy
hinders progress on education and social welfare. It shares this
misfortune with countries like Nigeria, Angola and Venezuela.

The problem is known internationally by a few different names: the
paradox of plenty, or the Dutch disease, or more commonly, the
resource curse. It hits when a country has an abundance of developed
natural resources — yet underperforms economically and socially.

The influx of cash and capital from one industry bends the economy,
and government warps and loses initiative as politicians avoid
annoying the goose that lays golden eggs.

Two more things New Mexico has in common with Nigeria, Angola and
Venezuela? Exxon and Chevron, two of the state’s largest well
operators.

Peach started studying the resource curse in the United States after
noticing how places like West Virginia and Oklahoma had huge coal and
oil industries yet remained mired in poverty. In New Mexico he saw
that oil and gas pumped money and jobs into just two or three
counties, and the rest of the state saw few benefits beyond taxes
redistributed through the state budget.

That bottleneck makes state politics contentious when it comes to
spending.

“People in the oil and gas industry are not exactly happy about the
fact that they provide so much of the state budget, and from their
perspective get so little in return,” Peach says.

He points out, though, that the money comes from selling resources
that belong to everyone in the state, not to the industry.

Every drop of water used to drill an oil well, every unit of natural
gas, every chunk of land carved up for wells and roads belongs —
directly or indirectly — to New Mexicans. Yet, while industry
exports those resources and earns profits for their shareholders, New
Mexicans are left with desiccated lands, polluted waters and uneven
investments in schools and futures.

*  *  *

AT A LEGISLATIVE FINANCE COMMITTEE MEETING in early December, the
state’s economists said that revenues for fiscal year 2021 will be
$850 million lower than in 2020. Seventy percent of that drop is from
reduced oil and gas income brought about by the COVID-19 disaster. The
economists did say that much of that gap can be filled from the
state’s rainy day fund — the Tax Stabilization Reserve — which
is filled by oil and gas taxes.

Clearly, revamping the economy won’t be an easy task.

Another difficulty is a deep resistance to economic development, Peach
explains.

Economic _growth_ happens when an oil boom sends more money flowing
into the state. But economic _development_ happens when the
state’s jobs diversify, creating more business sectors to fuel the
economy.

“Economic development always means a structural shift,” he says.
“And that’s threatening.”

It threatens bankers and politicians — the people with money to fund
development. Bankers don’t like lending to untested businesses,
Peach says, and they don’t want to support anything that might
undermine the profitability of what they already fund.

Politicians also tend to fear offending current tax-paying industries,
or raising taxes — for anything. “Nobody in the Legislature wants
to go back to their constituents and say, ‘I helped raise
taxes,’” Peach says.

But taxes fund large-scale education and infrastructure development
— the basic investments that pay out in timeframes longer than any
political career.

“Short-term thinking does not lend itself to the big sort of
infrastructure investments that the state needs,” says James
Jimenez, the executive director of New Mexico Voices for Children.
  
Improving education, health care, basic infrastructure and tax reform
will allow New Mexicans to thrive, but those are long-term projects
hampered by the state’s reliance on unstable revenue from oil and
gas.

In addition, the state tax structure leaks money through exemptions in
the gross receipts tax — the state’s other main revenue generator.
“We’ve exacerbated that problem by doing things like slashing
corporate income taxes and drastically cutting personal income taxes,
too,” says Jimenez.

“All the tax breaks in the world for business aren’t going to make
a difference if people don’t have money to spend,” he says. They
get more money to spend by working at better jobs. And they get better
jobs through better education, and through businesses attracted to a
state with better infrastructure.”

When she came into office, Gov. Michelle Lujan Grisham set forth a
spread of initiatives to improve those things. “What the governor
did with her policy proposals was a recognition of areas in which New
Mexico had been failing our residents,” says Jimenez, who began his
career as an economist for the state in 1986 and served as chief of
staff to former Gov. Bill Richardson. “You know, they’re not
dramatic.” They are basic improvements, he says.

Jimenez says it’s up to the governor and legislative leadership to
set a different direction.

“The real value of the governor’s office is the governor’s
ability to bring people together around a common direction — to set
a direction and say, ‘That. That’s our North Star. That’s where
we’re going.’”

*  *  *

STATE POLITICIANS AREN’T NECESSARILY blind to the problem.

“We’re just a small little state,” says state Rep. Angelica
Rubio. “That’s why I was so blown away by this resource curse
[idea], because nations are dealing with this and we’re not even a
nation.”

In her efforts at the Roundhouse to redirect how the state funds
itself, she’s received a lukewarm response from other legislators.
“How do we make it OK for other legislators to believe the same
thing without feeling like they’re going to leave people behind?”
she asks.
 
Rubio grew up in the Permian Basin, and most of her family works in or
adjacent to the oil and gas industry. But she sees the need to move
the state away from those jobs.

“I think it’s really hard for people to just come out and say,
‘We need to transition away from oil and gas, and these are the ways
we’re going to do it,’” she says.

“We just keep saying we’re going to diversify our economy, but we
just don’t lay out the road map.” She compares it to removing a
Band-Aid: It’s going to be painful but “you just have to rip it
off.”

It’s not just a Democratic issue. State Rep. James Strickler, a
conservative Republican representative from the San Juan Basin who
deals in oil and gas leases, says, “We absolutely need to diversify.
Everybody’s in agreement, I think from both sides of the aisle. But
how do you attract those businesses?”

If the state doesn’t figure that question out, it faces even greater
shortfalls if the oil and gas industry shrinks further in the future
— which appears increasingly likely.

*  *  *

THE OILMAN’S PRAYER COMES IN A COUPLE of versions, but it generally
goes like this: “Please God, let there be one more oil boom and I
promise I won’t piss it all away.” Google it and entries pop up
from Alberta to Texas to West Virginia. It was a popular bumper
sticker in the ’70s.

The saying reflects what Janie Chermak, professor and graduate
director in the Department of Economics at the University of New
Mexico calls the “continual roller coaster” as workers — and
state economies — chase jobs and dollars as the price of oil rises
and sinks. “It’s like _Groundhog Day_ every few years,” she
says.
  
Legislators might feel unable — or unwilling — to get themselves
off that roller coaster. But you can’t grow an economy centered on a
single, volatile industry. Only Alaska, Wyoming and North Dakota rely
more on oil and gas revenues than New Mexico. All three are
facing similar
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But one resource-rich state has shown that change can happen toward a
more robust, diversified economy.

When Colorado’s shale oil industry went bust in the 1980s, state
leaders decided to diversify the economy. “And so if you look at it
today, there is a tech industry,” Chermak says. “There is an
energy industry. There’s a number of different pieces there, but it
didn’t happen overnight.” Colorado also heavily promotes outdoor
recreation, which contributed more than $35 billion to that state’s
GDP in 2017. By comparison, in 2019 New Mexico’s outdoor recreation
industry brought in $2.4 billion.

It takes people with the foresight and the political will to steer the
state down a new path, she says, because it’s a challenging path.
And it’s hard to fight against an industry that is so big and has so
much money.

“You know, the lobbying capabilities of the oil and gas industry are
fairly substantial,” Chermak deadpans.

In the 2020 election cycle, oil and gas companies and their proxies
spent $1.5 million on local political campaigns and PACs in New
Mexico.

Post-election periods like now offer a short-term window when
politicians float new ideas before they begin to worry about
reelection, Chermak says. It’s not easy to diversify an economy that
has relied on one industry for nearly a century. “Diversifying an
economy has to be nurtured.

“You know, 10 years, if you came back and I was still living and
breathing, I’d hope to God we weren’t going to have the same
conversation,” Chermak says. “But you never know.”

For his part, Jimenez is optimistic.

“For the most part, legislators want good things for our children
and want good things for our families and want good things for our
state,” says Jimenez. “I found legislators on the whole to be
fitted to try to make New Mexico a better place.”

[_Jerry Redfern is a reporter for Capital & Main, covering the oil &
gas industry in New Mexico. He is also a visual journalist, covering
the environment, health, and human rights, primarily in the developing
world. He is in the final stages of post-production on his first
feature-length documentary film, Eternal Harvest, about the legacy of
the American bombing campaign in Laos during the Vietnam War._]

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