Albuquerque Journal

Oil producers striking it rich

NM, other states struggle to replace fossil fuel tax revenue

- BY MORGAN LEE AND MEAD GRUVER

SANTA FE — Government budgets are booming in New Mexico: Teacher salaries are up, residents can go to an instate college tuition-free, moms will get medical care for a year after childbirth, and criminal justice initiative­s are being funded to reduce urban violence.

The reason behind the spending spree — oil. New Mexico is the No. 2 crude oil producer among U.S. states and the top recipient of U.S. disburseme­nts for fossil fuel production on federal land. But a budget flush with petroleum cash has a side effect: It also puts the spotlight on how difficult it is to turn state rhetoric on tackling climate change into reality.

State government­s in the nation’s top regions for producing oil, natural gas and coal have by far the highest percapita reliance on fossil fuels — led by Wyoming, North Dakota, Alaska and New Mexico. The revenue bankrolls essential public services, from highway maintenanc­e to prisons. In Carlsbad, oil infrastruc­ture property taxes are underwriti­ng a high school performing arts center, expanded sports facilities and elementary school renovation­s.

None of that would be possible without oil revenue, said schools superinten­dent Gerry Washburn.

“We can’t slow down in that area and what we do to fund schools until we have a legitimate replacemen­t” for oil and natural gas income, he said. “Whether you’re in the middle of the oil patch or in an area with no oil and gas drilling going on, those policies are going to impact revenue in every school district in the state.”

Federal, state and local government­s receive an estimated $138 billion a year from the fossil fuel industry, according to a study from the Washington­based nonpartisa­n economics group Resources for the Future, which does not advocate on energy policies. That’s equivalent to the annual state spending of New York and Texas combined.

The cashflow is dominated by gasoline and diesel retail taxes in every state, but energy-producing states have the deepest dependence on fossil fuel income through a gamut of taxes, royalties, lease sales and fees. Because that revenue helps pay for government services, they tend to tax residents less, said Daniel Raimi, a fellow at Resources for the Future, and co-author of the study.

“That’s a really challengin­g dynamic if you think about a shift away from fossil fuels,” he said. “They’re going to be faced with the question: Do we raise our taxes on our residents or do we reduce the level of services we provide?”

In New Mexico, oil and gas account for 42% of state government income, a share that is rising amid the war in Ukraine and record-setting oil production in the Permian Basin that stretches across southeaste­rn New Mexico and western Texas. Additional oil income flows to a new interest-bearing trust for early childhood education.

Soaring fossil fuel industry profits also allowed the Democratic-controlled New Mexico Legislatur­e to try to tackle

the highest-in-the-nation unemployme­nt rate and persistent­ly high poverty. Lawmakers provided $1.1 billion in tax relief and direct payments of up to $1,500 per household to offset inflation.

At the same time, legislator­s balked this year at climate initiative­s that might restrain petroleum production. They rejected a bill to limit climate-warming pollution in the production and distributi­on of transporta­tion fuels, a step taken by West Coast states. New Mexico also shunned a state constituti­onal amendment for the right to clean air.

Democratic Gov. Michelle Lujan Grisham, up for reelection in November, said her administra­tion is working to contain oilfield methane pollution and diversify the economy. New mandates call for electricit­y production from solar, wind and other renewable sources. But she has cautioned the federal government against significan­t restrictio­ns on oil exploratio­n and production, still the lifeblood of the state budget.

“We can work very effectivel­y with oil and gas producers to both meet clean energy standards … while still managing pretty incredible exploratio­n of fossil fuels to meet the current energy demands of the world,” the governor said in April.

Preserving income from oil, natural gas or coal production while acting on climate change can be especially tricky in blue states where Democrats often campaign on tackling global warming.

Colorado’s Democratic Gov. Jared Polis is pursuing an ambitious cleanenerg­y plan while trying to preserve $1 billion in annual oil and gas production tax revenue. To justify air pollution restrictio­ns, Polis has cited real-time evidence of climate change, drought and fire.

But Polis, a wealthy tech entreprene­ur, last year threatened to veto a proposal that might impose per-ton emission fees on polluters. William Toor, executive director of the governor’s Colorado Energy Office, said the state’s not targeting fossil fuel production — only the industry’s emissions.

On Colorado’s northeaste­rn plains, Weld County Commission Chairman Scott James said state regulation­s stifle new drilling needed to support production and government revenue, especially for schools. The county is centered on a vast oil field stretching from the Denver area into Wyoming and Nebraska.

“I agree with the overall mission of reducing greenhouse gas, but there’s an environmen­t that exists at the state Legislatur­e that we must electrify everything, we must mandate it, we must do it now,” James said. “And these technologi­es are not yet ready for prime time. We simply don’t have the capacity to do it.”

Rural and economical­ly isolated communitie­s could find it hardest to adapt to a low-carbon economy, said Montana-based Headwaters Economics researcher and economist Kristin Smith, who studies public finances in North Dakota’s Bakken oil region. She anticipate­s “very hard decisions” about cutting areas like public health care and policing.

Some major petroleum producing states are forging ahead with their climate agendas.

Pennsylvan­ia in April became the first major fossil-fuel state to adopt a carbon-pricing policy, joining an 11-state regional consortium that sets a price and declining limits on carbon dioxide emissions from power plants.

Democratic Gov. Tom Wolf’s initiative comes without approval from the Republican-controlled Legislatur­e in the nation’s No. 2 state for natural gas production — and a major exporter of gas-generated electricit­y. A per-well drilling fee on the state’s booming Marcellus Shale gas industry has rained cash on rural counties and municipali­ties for nearly a decade.

South of Pittsburgh, Washington County reaped over $100 million in the past decade. That’s equivalent to $500 per resident — a “game changer,” said county board chairwoman Diana Irey Vaughan. The windfall paid for park and bridge improvemen­ts, among others.

Democratic state Rep. Greg Vitali, an advocate for stronger climate change action, said local government­s relying on gas drilling money will simply have to use traditiona­l tools such as property taxes to get by.

Republican-dominated Wyoming, the top coal production state, has bold goals to reduce greenhouse emissions to less than zero even while fossil fuels account for over half its revenue.

That vision relies on eventually capturing carbon dioxide from coal- and gas-fired power plants and pumping it undergroun­d, possibly to increase oil production in aging fields in the middle of the state. Wyoming leaders are also looking to alternativ­e fuels like hydrogen and nuclear power, using reactors that produce less waste.

Meanwhile, a decade of declining coal demand has sapped government income. Republican Gov. Mark Gordon in March signed a coal tax reduction, forgoing about $9 million annually to help the coal industry stay economical­ly viable.

The state — one of only two with no taxes on individual income, corporate income or gross receipts — must confront its dependence on fossil fuel money eventually, said Jennifer Lowe, executive director of the Equality State Policy Center, a government watchdog group.

“At some point, there’s going to have to be a come-to-Jesus moment,” Lowe said.

 ?? EDDIE MOORE/JOURNAL ?? Methane gas is burned off at a site of three oil wells east of Carlsbad in 2019. Oil and gas account for 42% of state government income in New Mexico.
EDDIE MOORE/JOURNAL Methane gas is burned off at a site of three oil wells east of Carlsbad in 2019. Oil and gas account for 42% of state government income in New Mexico.
 ?? EDDIE MOORE/JOURNAL ?? Four new oil wells in the Delaware Basin just south of Carlsbad in 2019. New Mexico is the No. 2 crude oil producer among U.S. states.
EDDIE MOORE/JOURNAL Four new oil wells in the Delaware Basin just south of Carlsbad in 2019. New Mexico is the No. 2 crude oil producer among U.S. states.

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