Oil, gas royalty rate proposal
State land commissioner plans to put forward legislation that would raise rates
Gov. Michelle Lujan Grisham says she wouldn’t oppose efforts to raise royalty rates, an idea that failed to pass the Legislature earlier this year.
Gov. Michelle Lujan Grisham said she wouldn’t oppose efforts to raise royalty rates on some oil and gas production, an idea that failed to pass the Legislature earlier this year.
“I wouldn’t fight it,” Lujan Grisham told The New Mexican on Tuesday when asked if she would support a proposal to increase what the state collects from production on some state lands. “I’m certainly not going to stand in the way of the land commissioner.”
State Land Commissioner Stephanie Garcia Richard’s office said it plans to propose such legislation again, after a bill that would have allowed for royalty rates of up to 25 percent was tabled by a House committee in February.
Garcia Richard has argued that raising royalty rates is a good idea for a state rich in oil and gas but burdened by one of the country’s highest poverty rates.
“Texas charges a 25 percent royalty rate, yet we are stuck at 20 percent,” she wrote in an op-ed in February.
The oil and gas industry has countered that it already generates a large share of the funds for New Mexico’s government through taxes and royalties, and that raising royalty rates would drive away business and ultimately hurt the state.
New Mexico currently charges royalty rates of up to 20 percent on oil produced on state land. It has not changed its royalty rates since the 1970s, Rep. Derrick Lente, D-Sandia Pueblo, who sponsored the bill put forward in the last session, told the House Commerce and Economic Development Committee.
Lujan Grisham said any efforts to hike rates would need to be mindful that oil and gas companies are already helping fuel economic growth.
She added that rates shouldn’t be boosted too much, but it would be “reasonable” to consider raising them if they’re “too low.
“If you’re going to go higher than everyone else, and it’s intended to squeeze out partners who are trying to do everything they can to help our economy and also do their part to minimize their carbon footprints, then that might be too much, too fast,” she said. “But reasonable attention to that, if we’re too low, is fair.”
She said added revenue could be allocated to public education.
The State Land Office has not asked the governor to put a proposal on the call for the 2020 legislative session, a spokeswoman for the agency said.
If the issue is not taken up next year, the State Land Office said it would propose a bill for the 2021 session.
“Commissioner Garcia Richard is committed to pushing legislation to raise the royalty rate to 25 percent,” spokeswoman Angie Poss said. “In fiscal year 2019, the land office raised over a billion dollars for the first time in history — predominantly from oil and gas. This strengthens our argument that the market can bear a higher royalty.”
New Mexico’s oil and gas boom allowed Lujan Grisham to sign the largest budget in state history in April, at $7 billion, which included an 11.6 percent increase in spending and kept reserves at 20 percent.
The state’s budget surplus was higher than expected in the first nine months of the current fiscal year, as the oil and gas production boom in the Permian Basin in southeastern New Mexico pushed revenues to exceed forecasts.
The state’s general fund collected $5.98 billion in the nine months between July and March 2019, a $1.36 billion increase from the same period a year earlier, according to the Legislative Finance Committee. Rents and royalties from oil and gas accounted for 47 percent of the increase in revenue compared with last year.