Lawmakers told to use oil money to steel against eventual downturn
Financial consultants warned members of the Revenue Stabilization & Tax Policy Committee Monday that the state’s reliance on the notoriously boom-and-bust oil and gas sector is risky. They implored lawmakers to reform taxes and diversify the economy to protect itself.
Director of PFM Group Consulting LLC Ryan McNeely told lawmakers that it's not a question of if, but when, the oil and gas industry will begin to falter. The group presented estimates that production, which fuels about a third of state revenue, could peak around 2030.
“You all know that that means that policymakers sort of need to ride this rollercoaster of volatility,” he said. “And it just so happens that right now you’re in that portion of the rollercoaster where you’re going up the slope, but there will likely be an inevitable bust in the future, and you’ll have to take that ride with it.”
Using various price and production scenarios, PFM estimates that could mean New Mexico falls between $26 billion and $36 billion short of the revenue the state may be expecting over the next 15 years.
PFM recommends lawmakers look at this moment of record oil and gas production as a short-term opportunity.
“It’s a time for prudence,” McNeely told the panel. “And a way to reinvest these resources in a way that will pay off in the long run.”
The group recommends lawmakers diversify the economy and reform the tax code with a focus on increasing equity.
They recommend creating higher income tax brackets, eliminating the capital gains deduction, and enacting an estate tax among other changes.
They told lawmakers that the state mostly evaluates its economic development efforts using job creation, but should concentrate on state revenue and employment, especially of those who’ve been left behind.
“There’s a whole population in New Mexico that is not benefiting from that increase in revenues and has experienced persistent poverty over time,” McNeely said. “And that’s something that we think you all should look to address in the longer term.”
The consultants told the panel that, as more New Mexicans increase their earnings, the better insulated the state will be from a downturn, since those residents will pay more in taxes and be less likely to need government services.
The Your New Mexico Government project is a collaboration between KUNM and New Mexico PBS with support from the Thornburg Foundation.