It is not breaking news that NM is all too dependent on gas and oil revenues. But this post outlines the scope and scale of that dependence and points to how we can diversify our revenue base and inject equity into our tax system, to the immense benefit of all New Mexicans

How Dependent Are We on Gas & Oil Revenue?

The two charts that follow were excerpted from Voices for Children’s excellent policy brief, “Revenues We Can Rely On” by Paige Knight. We will be basing much of this post on that brief, as no one does a better job of outlining revenue and budget issues and tying them to social justice, particularly as relates to justice for children and families and communities of color.

Figure I below depicts how downturns in NM’s annual revenues correlate with cuts in the state budget. The grey and black lines depict growth or decline in state revenue and the green and red bars represent state expenditure levels. The rise and fall of revenue, is closely aligned with the boom or bust cycles of the gas and oil industry. We have shockingly little capacity to sustain funding for key programs whenever gas and oil hits another inevitable bust cycle. Revenues plummet; programs are slashed.

As Voices’ policy brief is quick to note, “New Mexico’s revenues are ranked the fourth most volatile in the nation by Pew Trusts, with Figure II clearly demonstrating in red the ups and downs of our oil and gas revenues, known as severance taxes.” Note also how much more stable the personal income (aqua) and sales (tan) revenues are. We will return to this later.

The gas and oil industry is notorious for its wild fluctuations, which create years of robust state economies, too often followed by bust years that deplete the state’s capacity to support key programs upon which children and families rely. You can’t create and sustain child-serving systems with funding that vacillates dramatically from year to year. Wildly fluctuating funding support is how you undermine program capacity to recruit and retain quality staff. What’s more, no child-serving agency operates as an island. And it is nearly impossible to establish and sustain strong collaborative relationships with agencies upon which they can depend if those agencies are also constantly under financial stress and enduring their own staffing and funding instability. Child-serving agencies need to plan proactively, as a system and over many years, to develop reliable programs that serve often severely under-resourced and underserved populations. That can’t happen with funding support that is dependent upon a state revenue flow reflected in Figures I and II above.

Can Gas and Oil Provide Long-Term Stable Funding? Even if It Could, Would that be Good for NM Children and Families?

Again, we turn to Voices’ policy brief to answer this question. From “Revenues We Can Rely On”:

New Mexico’s over-reliance on one industry’s revenues is a threat to our fiscal health because research shows that the oil and gas industry is in a long-term decline – a decline that began even before the pandemic. The steady growth of renewables and changes in energy consumption patterns mean we cannot continue to rely on this industry as an ongoing source of revenue.

As the energy landscape changes to one that accounts for the growing threat of climate change, “the combined effects of high infrastructure costs, over-production and substantial shifts in the energy market have permanently weakened the oil and gas industry’s revenues and profitability,” according to a recent report.^[3]

The industry has certainly contributed significantly to our revenues over the years, but our children, our classrooms, and our communities deserve more funding reliability. Lawmakers cannot wait for these revenues to dissipate, and instead need to be forward-thinking in replacing these revenues with fair and stable sources.

Voices for Children: “Revenues We Can Rely On”

Even if gas and oil could provide stable funding indefinitely, the environmental impact of their work is devastating to our environment and for the health of our children. From “Revenues We Can Rely On“:

In 2018, the oil and gas sector was responsible for 53% of greenhouse gas emissions in New Mexico, according to New Mexico’s climate report. The sector with the next-largest emissions, transportation, was only responsible for 14%.^[4]

These emissions are a threat to public health and pollute our air, which can cause respiratory illness and other acute and chronic health problems, especially among children and the elderly. Oil and gas production can also leak toxic substances into the soil and our drinking water sources, negatively impacting the health of our communities and wildlife.

Current and proposed climate change mitigation strategies will help reduce the state’s overall emissions profile, but reaching the state’s long-term targets will require ambitious action and increased regulations to limit the oil and gas industry’s ability to pollute our air, land, and water.

Voices for Children: “Revenues We Can Rely On”

Voices goes on to describe how NM must be continually growing our budget, not just to keep up with inflation (3% per year), but also to build out long-neglected and perilously dilapidated infrastructure across the state. Our roads, bridges, and water systems are desperately overdue for attention, and COVID exposed how inadequate our broadband is and how poorly it serves tribal and rural NM. Funding for infrastructure is too often cut when lawmakers need to balance the budget while resisting doing the far more responsible option of expanding our revenue base.

A Budget is a Moral Document; Budgets Reflect our Commitment to Equity Far Better than Rhetoric

The pandemic and corresponding economic downturn have illuminated the long-standing health and economic inequities that exist for our communities of color. These inequities ultimately stem from racism’s harmful legacy and the ongoing inequality of opportunity that plagues our state.

Disparities are created and furthered by government policies and practices – from slavery and the confiscation of tribal land and resources, to Jim Crow laws, red-lining policies and the segregation of Black families in lower-value neighborhoods, lending discrimination to make purchasing homes or starting businesses difficult if not impossible, and tax cuts that favor wealth over wages.

Tax policy is an important equity tool to help remedy these disparities because it decides who pays their fair share of taxes, who doesn’t, and who benefits most from the way the system is structured. Fortunately, New Mexico’s lawmakers can help provide more opportunities for communities of color by enacting tax and budget policies that advance equity.^[6]

Voices for Children: “Revenues We Can Rely On”

What Options Do We Have to Equitably Diversify & Expand our Revenue Base and Better Serve New Mexico?

As noted by Voices, our legislators have the ability to do the right thing and advance a wide range of progressive tax and revenue policies. Each of the revenue policies below would add just a bit more to the state budget, providing funds to expand how well we address the needs of all New Mexicans.

Voices closes their brief by identifying very specifically, the policy options that should be implemented to reduce our reliance on gas and oil revenues and begin better addressing systemic inequity in NM.

There are many common-sense ways to raise reliable revenue that can be used to educate our workforce, create jobs, and bolster our economy in a way that is sustainable, forward looking, and better supports child well-being and environmental health. Income, wealth, property, sales, and excise taxes can all be reformed in a way that asks more from those with the means to pay their fair share. For a more in-depth description of each of the options listed below, please see our Fueling an Equitable Recovery policy brief.

Voices for Children: “Revenues We Can Rely On”

Fueling an Equitable Recovery, goes into depth in describing the importance of each of the following policies, outlining why each is justified and how each would layer our budget with far more resources that are both sustainable and reliable while also injecting much needed equity to our Tax and Revenue System. As the Voices graphic above reveals, our existing tax system is embarrassingly regressive, requiring far too much from our low-income New Mexicans and far too little from those with more means to contribute. Remarkably, our lowest 20%of income earners pay a far higher percent of their income in state and local taxes than wealthy New Mexicans, 50% more than our top 1% income earners. How can legislators not advance the policies below in order to address this disparity?

Personal Income Tax

• Raise income tax rates for the state’s highest income earners
• Reform or repeal itemized deductions
• Require high-income earners to pay the top rate on all their income, instead of just the income that falls in the top bracket
• Decouple from federal “Opportunity Zone” tax breaks

Wealth Taxes

• Fully repeal the capital gains preference
• Enact an estate or inheritance tax
• Enact a “mansion tax” on high-value or second homes

Corporate Income Tax

• Increase the corporate income tax rate
• Establish a corporate minimum tax of $500 or more
• Establish a minimum tax on large S-corps and LLCs
• Include foreign tax havens in mandatory combined reporting

Gross Receipts Tax

• Repeal wasteful and ineffective tax breaks

Excise Taxes

• Raise the gas tax
• Raise the motor vehicle excise tax so it’s more in line with neighboring states
• Raise tobacco, e-cigarette, and alcohol taxes

Property Taxes

• Enact a real estate transfer tax on second or high-value homes
• Adopt different property tax rates for different kinds of property

Other Tax and Revenue Options

• Tax the full rental rate of hotels booked online
• Increase severance taxes (royalty payments) on natural resource extraction
• Enact a new tax on diesel fuel
• Enact a heavy trucks permit fee

Diversifying our economy and revenue streams cannot happen overnight nor can it happen quickly, but it must happen eventually if we want to have a stable, sustainable way to truly invest in the programs that matter most to our families now and into the future.

We cannot afford to be so reliant on oil and gas revenues. Instead, we need to evaluate our tax code and ensure that it is working for all New Mexicans and that we have enough revenue to build the best possible future for our state – one that robustly supports the programs that are most important to our children’s and our families’ well-being and support opportunities for them to thrive and reach their full potential.

Voices for Children: “Revenues We Can Rely On”

For these policies to be enacted, we need well-informed, grassroots pressure to push our legislators and our governor to do the right thing. Effort is required to become sufficiently informed to to be able to cogently respond to legislators who simply offer lame justifications for not passing progressive tax reform, like “we already tax New Mexicans too highly” or “we are just emerging from COVID, this is not the time to raise taxes on corporations.” There is no better resource for becoming comfortably conversant in tax policy than Voices for Children. Their Fueling an Equitable Recovery policy brief is an excellent place to start your education, but Voices’ entire website is packed with invaluable information and they have a “donate” button as well to support their extraordinarily important work.

Retake will keep you posted on which of the above tax and revenue policies are advancing and how best to advocate with your legislators, so stay tuned!

In solidarity and hope,

Paul & Roxanne

Categories: State Budget

Tags: economic justice, Equity, feaatured, fossil fuels, gas & oil revenues, NM State Legislature, read more, Roundhouse, sustainabl diverse budget