Commentary: While the state is currently flush with revenue from the booming oil and gas markets, as well as federal recovery funding, one advocacy group is recommending that lawmakers not lose sight of the need to diversify the state’s revenue sources in order to protect future budgets. A policy brief, released today by New Mexico Voices for Children, outlines the top five reasons revenue diversification is necessary for the state’s long-term fiscal sustainability and ability to invest in programs crucial to family health and well-being.
They are:
- New Mexico is dangerously dependent on the boom-and-bust cycle of the oil and gas industry.
- A number of indicators show the oil and gas industry is in a long-term decline.
- For the health and well-being of our children, New Mexico needs to transition away from fossil fuels.
- The state has many unmet revenue needs, and they’re only expected to grow.
- Raising adequate and sustainable revenue can help promote equity in our communities.
As the policy brief shows, oil and gas extraction is an extremely unstable source of revenue that the state depends upon for funding essential programs like education. And while that may seem irrelevant during boom times, we can’t forget that every past oil- and gas-fueled revenue boom has been followed by a bust and subsequent budget cuts to education and health care.
“When we’re in an oil boom, too many policymakers seem to suffer from collective amnesia about the bust times,” said James Jimenez, executive director of the child advocacy organization. “Oil extraction is a volatile industry and it’s unwise to put too much reliance on it for revenue we need every year. Unfortunately, because of years of tax breaks based on failed trickle-down economic theory, that’s where we are.”
As is noted in the policy brief, approximately 30% of the state’s revenue for the operating budget comes from oil and gas extraction. And when the industry is in a bust phase, lawmakers have too often dealt with the loss of revenue by making steep spending cuts to education, health, and public safety programs, which help families and the economy prosper. While policymakers have taken wise steps in recent years to bolster state reserves in order to buffer the state from dramatic revenue fluctuations, the brief argues that, long-term, New Mexico’s economy and revenues need to be diversified in order for the state to have a bright future that works for all New Mexico families.
“Aside from the boom-and-bust nature of fossil fuel extraction, the industry itself is in a long-term decline,” points out Research and Policy Analyst Paige Knight, who authored the policy brief. “Changes in energy consumption, the rise of renewable energy resources, and the growing public concern over climate change all point to the need for the state to take revenue diversification seriously. Fortunately, the current revenue surplus gives lawmakers some breathing room, allowing them to do some future planning that will strengthen the state budget over the long term,” she said.
In addition to exploring the top five reasons the state should diversify its revenue sources, the policy brief also includes several recommendations for how that could be done in ways that would also make our tax system more just.
The policy brief, “Revenue We Can Rely On,” is available online at https://www.nmvoices.org/archives/16217