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Research & Commentary: New Report Details How Oil and Gas Production Is Vital to New Mexico’s Budget

May 15, 2019

Nearly One Third Of New Mexico's General Fund Came From Oil & Gas Production In Fiscal Year 2018

Oil and gas production accounted for 32 percent of New Mexico’s general fund in fiscal year 2018, according to a report from the New Mexico Oil and Gas Association. Altogether, these industries generated $2.2 billion, a $465 million annual increase.

Money from the general fund is used to pay for things such as education, public safety services, infrastructure, and health care. The report shows more than $1 billion in funding for K–12 and higher education came from oil and natural gas production in FY 2018. In Bernalillo County alone, fossil fuel production revenue provided $346 million in education funding.

This large revenue increase is primarily due to the hydraulic fracturing, also called “fracking,” revolution, which has made it easier to tap into New Mexico’s vast oil and natural gas resources. Unfortunately, this boom hasn’t stopped undue opposition to fracking based on erroneous environmental concerns. This past legislative session, legislation was introduced that would have placed a four-year ban on new fracking permits.

Not surprisingly, a fiscal impact report from the Legislative Finance Committee estimated this ban, which would be in place until 2023, “would cause severe revenue losses” to state and local governments. “Direct revenues from [the oil and natural gas] industry – including severance and production taxes, bonuses and royalty payments on state and federal lands, and gross receipts taxes (GRT) – make up about 35 percent of the entire FY19 general fund revenue estimate.”  The report estimates this ban would cost the state government roughly $3.5 billion and local governments $327 million in lost revenues. Also, the report notes this estimate “should be considered a minimum impact, as it assumes current oil and gas production remains constant.”

Because of fracking, natural gas prices were roughly a third lower in New Mexico in 2016 than 10 years prior, leading to $1.6 billion in savings over that period for residential consumers. This is significant because roughly 400,000 New Mexicans live in poverty, and the average New Mexico resident at or below the poverty level spends around a quarter of their take home pay on energy costs. Additionally, commercial and industrial consumers saved $1.86 billion during the same period.

Moreover, the oil and natural gas industries supported more than 90,000 jobs in New Mexico—8.3 percent of the state total—in 2015. These vital industries produced more than $5.2 billion in labor income and accounted for $12.8 billion in economic impact, according to a 2017 American Petroleum Institute study prepared by PricewaterhouseCoopers. The Land of Enchantment is now the third-largest oil producing state, behind only Texas and North Dakota, respectively.

Unfortunately, fracking has been maligned because of numerous false claims spouted by fracking opponents, including that the process pollutes the air and water. However, despite fear-mongering to the contrary, there is no evidence that seepage of fracking fluids, oil, or natural gas from fracking wells contaminate water sources. A plethora of scientific research, including more than two-dozen peer reviewed studies and analyses released since 2010 and a six-year Environmental Protection Agency (EPA) study released in 2016, have determined the fracking process is not a systemic threat to groundwater sources.

Studies from across the country also reveal air pollution near fracking operations typically poses no danger to human health. Moreover, EPA reports the decades-long decline in the nation’s air pollution has continued unabated since fracking became more widespread over the past decade.

Federal, state, and local governments have tested thousands of sites for hydraulic fracturing pollution of groundwater and drinking water resources over the past decade. In light of the immense number of studies showing fracking is safe and that it provides substantial economic benefits, New Mexico lawmakers should not seek to ban the practice, place a moratorium on it, or place onerous regulations on drilling activity.

This isn’t to say there are zero risks associated with fracking or other drilling operations. However, those risks are quite small compared to the enormous benefits fracking continues to provide to New Mexico.

The following documents provide more information about fracking.

Debunking Four Persistent Myths about Hydraulic Fracturing
https://www.heartland.org/publications-resources/publications/debunking-four-persistent-myths-about-hydraulic-fracturing
This Heartland Institute Policy Brief by Policy Analyst Timothy Benson and Linnea Lueken, a former Heartland communications intern, outlines the basic elements of the fracking process and then refutes the four most widespread fracking myths, providing lawmakers and the public with the research and data they need to make informed decisions about hydraulic fracturing.

Fueling New Mexico: The Oil & Natural Gas Industry’s Impact on Our Schools
https://d3n8a8pro7vhmx.cloudfront.net/nmoga/pages/844/attachments/original/1549991883/NMOGA_Binder-compressed.pdf?1549991883
This report from the New Mexico Oil and Natural Gas Association finds oil and natural gas production is the single largest source of revenue the state’s budget, having provided $2.2 billion in fiscal year 2018, providing the state with a billion-dollar budget surplus. This includes a $822 million contribution to K–12 education and a $240 million contribution to higher education.

Energy for New Mexico
https://consumerenergyalliance.org/cms/wp-content/uploads/2018/10/CEA-NM-Report-FINAL.pdf
This report from the Consumer Energy Alliance examined how the shale revolution across New Mexico has provided benefits to residents of the Land of Enchantment by boosting disposable income, revitalizing communities, and saving residential users $1.6 billion and commercial and industrial users $1.86 billion from 2006 to 2016.

The Local Economic and Welfare Consequences of Hydraulic Fracturing
https://www.heartland.org/publications-resources/publications/the-local-economic-and-welfare-consequences-of-hydraulic-fracturing
This comprehensive study published by the National Bureau of Economic Research says fracking brings, on average, $1,300 to $1,900 in annual benefits to local households, including a 7 percent increase in average income, a 10 percent increase in employment, and a 6 percent increase in housing prices.

Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers
https://www.heartland.org/publications-resources/publications/climate-change-reconsidered-ii-fossil-fuels---summary-for-policymakers
In this fifth volume of the Climate Change Reconsidered series, 117 scientists, economists, and other experts assess the costs and benefits of the use of fossil fuels1 by reviewing scientific and economic literature on organic chemistry, climate science, public health, economic history, human security, and theoretical studies based on integrated assessment models (IAMs) and cost-benefit analysis (CBA).

The Social Benefits of Fossil Fuels
https://www.heartland.org/publications-resources/publications/the-social-benefits-of-fossil-fuels
This Heartland Policy Brief by Joseph Bast and Peter Ferrara documents the many benefits from the historic and still ongoing use of fossil fuels. Fossil fuels are lifting billions of people out of poverty, reducing all the negative effects of poverty on human health, and vastly improving human well-being and safety by powering labor-saving and life-protecting technologies, such as air conditioning, modern medicine, and cars and trucks. They are dramatically increasing the quantity of food humans produce and improving the reliability of the food supply, directly benefiting human health. Further, fossil fuel emissions are possibly contributing to a “Greening of the Earth,” benefiting all the plants and wildlife on the planet.

Impacts of the Natural Gas and Oil Industry on the U.S. Economy in 2015
https://www.heartland.org/publications-resources/publications/impacts-of-the-natural-gas-and-oil-industry-on-the-us-economy-in-2015
This study, conducted by PricewaterhouseCoopers and commissioned by the American Petroleum Institute, shows that the natural gas and oil industry supported 10.3 million U.S. jobs in 2015. According to the Bureau of Labor Statistics, the average wage paid by the natural gas and oil industry, excluding retail station jobs, was $101,181 in 2016, which is nearly 90 percent more than the national average. The study also shows the natural gas and oil industry has had widespread impacts in each of the 50 states.

What If … America’s Energy Renaissance Never Happened?
https://www.heartland.org/publications-resources/publications/what-ifamericas-energy-renaissance-never-actually-happened
This report by the U.S. Chamber of Commerce’s Institute for 21st Century Energy examines the impact the development of shale oil and gas has had on the United States. The report’s authors found that without the fracking-related “energy renaissance,” 4.3 million jobs in the United States may not have ever been created and $548 billion in annual GDP would have been lost since 2009. The report also found electricity prices would be 31 percent higher and gasoline prices 43 percent higher.

What If … Hydraulic Fracturing Was Banned?
https://www.heartland.org/publications-resources/publications/what-if-hydraulic-fracturing-was-banned
This study is the fourth in a series of studies produced by the U.S. Chamber of Commerce’s Institute for 21st Century Energy. It examines what a nationwide ban on hydraulic fracturing would entail. The report’s authors found by 2022, a ban would cause 14.8 million jobs to “evaporate,” almost double gasoline and electricity prices, and increase natural gas prices by 400 percent. Moreover, cost of living expenses would increase by nearly $4,000 per family, household incomes would be reduced by $873 billion, and GDP would be reduced by $1.6 trillion.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Lennie Jarratt, a state government relations manager at The Heartland Institute, at ljarratt@heartland.org or 312/377-4000.