KRWG

Erickson: New Mexico Should Use The Oil Boom Windfall To Rebuild The State

Nov 11, 2018

Credit Dr. Chris Erickson

Commentary: A recent headline in Bloomberg stated that New Mexico was the top performing state economy since the inauguration of Trump. What is obscured by the Bloomberg headline is what is taking place in the Southwest corner of the state—in Lea and Eddy Counties. Underlying these two counties is the Permian Basin, currently the largest oil play not just nationally, globally.  

Ten years ago, production was in decline. The region had been abandoned by the large players and was primarily worked by smaller producers reworking older sites. Fracking changed all this, transforming the Permian for a dying region to the boom play.

While the oil patch is booming, the rest of the state’s economy is moribund. We face significant structural problems. New Mexico counties (except Lea and Eddy) grew only 0.2 percent.

Our economy was ranked 46th by 24/7 Wallstreet based on 5-year employment and income growth, and the June unemployment rate. U.S. News Best States 2018 ranked New Mexico 48th. Another 24/7 Wall Street study that ranked cities by high school graduation rates put Santa Fe, Albuquerque and Farmington in the bottom 15.

The oil patch bonanza means that there is now a chance that we can do something about the sorry mess the state is in. With the oil boom comes a tax windfall. The current forecast is for $1.2 billion in “new” money; but many believe this estimate to be to low, with some saying the ultimate new money total could be as much as $2 billion. Revenues in a typical year run around $5-and-a-half billion, so a billion dollars, let alone $2 billion, is a lot.

Of course, we haven’t repealed the business cycle. This year’s windfall may not persist as the vagaries of market cause oil prices to fall. Nevertheless, it is likely oil production has permanently shifted up in New Mexico as higher output is due mainly to advances in fracking technology and not prices changes. Prices may go up and may go down, but rig operators aren’t going to forget how to frack.

What to do with the surplus? First, keep the powder dry by not over committing to ongoing expenditure. Replenishing tax stabilization fund, catching up on deferred maintenance, and spending on new infrastructure are the types of onetime expenditures that contribute to economic wellbeing of New Mexicans without requiring long term commitment.

Then we come to the big Kahuna, the problem that is the fundamental to New Mexico’s future, which is our public-school system. This will require a commitment of long-term funds. Fixing it will take money.

Education experts, including among them a few economists, have studied intensely how to improve educational outcome and it turns out that personnel are key. Sure, you can teach someone a technique that improves outcomes, or develop a lesson plan that helps teach a concept. But taking a bad teacher and turning them into a good teacher something we don’t know how to do. Perhaps being a good teacher involves an ability to read body language or some sort of charisma factor not understood. Either you can do it or you can’t.

This means that recruiting and retaining good teachers is critical. This means paying salaries competitive with alternatives available to teachers, like working in the oil patch. And this means structuring the work environment so that teachers will want to stay in education—small class sizes, more autonomy.

The oil boom has presented New Mexico with a once in a generation opportunity to do something about our problems. Let’s hope Santa Fe doesn’t waste this chance.

Christopher A. Erickson is a professor of economics at NMSU. Has studied the New Mexico economy for more than 30 years. The opinions expressed may not be shared by the regents and administration of NMSU. Chris can be reached at chrerick@nmsu.edu.