Record-Setting Oil Production Generates $1.6 Billion Projected State Surplus for New Mexico

New Mexico announced Friday a predicted $1.6 billion surplus in the state's general fund for the next fiscal year, fueled largely by record levels of oil and natural gas production, according to the Associated Press.

The state passed North Dakota this year as producer of the second largest amount of oil in the country at a projected income level of $1.44 billion from the oil and gas industry alone. Texas is the only state producing more.

The projection is $200 million higher than one from August, and comes as the state's lawmakers approach the January onset of discussions for creating a budget to spend the general fund in the fiscal year that begins July 1, 2022.

Democratic Governor Michelle Lujan Grisham has recommended a 7 percent pay raise for public school employees, and higher pay rates for teachers at all points of their careers. She also produced a proposal for $100 million to promote hiring for state and local police departments.

However, economists from across the state's government cautioned the level to which the current financial projections are based on oil prices across the globe, which could be impacted by the rise of Delta variant COVID cases, as well as the recent discovery of the Omicron variant.

Other state officials have said while some areas of the economy are thriving, that success isn't always mirrored by the state's residents.

"We still have a big percentage of our population that is in a difficult financial situation," said Taxation and Revenue Secretary Stephanie Schardin Clarke. "We see the stock market doing so well. ... I just want us not to forget that there is a whole sector of the economy that has not experienced those gains."

For more reporting from the Associated Press, see below.

The petroleum sector accounts for most of the new money because of record-setting oil production in New Mexico's portion of the fertile Permian Basin oil and gas formation.

Natural gas production also has accelerated in New Mexico.

New Mexico's economy has recovered about two-thirds of the jobs that were lost at the onset of the pandemic in 2020, Clarke said.

Income for many state residents has dropped with the expiration of federal stimulus payments.

New Mexico authorities have spent more than $600 million in federal pandemic aid to replenish the state unemployment insurance trust without raising taxes on employers, with more than $1 billion in pandemic aid still unassigned.

Lujan Grisham is urging legislators to take action soon to appropriate that federal relief — soliciting spending bills during a special legislative session focused on redistricting that begins Monday and extends indefinitely in advance of the year-end holidays.

Democratic Senate finance committee Chairman George Muñoz of Gallup wants the Legislature to consider depositing the pandemic aid in the state general fund, which he said would buy time to thoroughly examine infrastructure projects and ways to provide better education and training to New Mexico's workforce.

New Mexico's political divide over federal energy policy was on prominent display Friday, as legislators on the state's lead budget writing committee peppered economists with questions about the oil sector of the economy.

Republican state Senator Gay Kernan of Hobbs warned that future state government income would be at risk if the U.S. government imposes a moratorium on oil lease sales on public lands.

The state expects to receive $1.44 billion in annual income from oil and natural gas production on federal land through payments for royalties and lease bonus payments.

¨I think it's a huge risk down the road,¨ Kernan said. ¨I do think we are going to see an impact."

The Biden administration in November recommended an overhaul of the nation's oil and gas leasing program to limit areas available for energy development and raise costs for oil and gas companies to drill on public land and water.

The state is expected to end the current fiscal year in June 2022 with a general fund balance of $2.5 billion — equal to about 35% of annual spending commitments.

As recently as 2017, New Mexico temporarily slashed spending to state colleges and universities in response to faltering oil prices and reduced government income.

Looming over the budget surplus are New Mexico's commitments to underwrite a portion of Medicaid coverage for people with low income.

Enrollment in the program surged during the pandemic and supplemental federal payments are set to expire in spring 2022.