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While we doubt that oil and gas prices will collapse and fall much below where they are today, they are falling and little and each drop means just a little less for the state.
And these falling gas and oil prices have caused members of the Legislature to worry that the state’s projected $400 million revenue windfall may be melting away like an ice cube on a hot summer day.
The Associated Press reported that the volatile energy prices are raising questions whether the state should spend nearly $300 million of the one-time surplus money for a tax rebate, other economic assistance and highway financing as proposed by Gov. Bill Richardson.
Recent energy price changes could translate into an annualized revenue drop for New Mexico between $200 million and $300 million, lawmakers say.
We have been warning for some time about the state spending windfalls as once you start spending, you want to continue. And if the revenues are no longer there, well, taxes go up.
Despite lawmakers’ concerns, Gov. Richardson remains optimistic about the state’s economic outlook and he’s not backing off his plan for a special session starting Aug. 15.
“I’ve been dealing with pessimists in the Legislature, economists ... that keep telling me the economy is not going to grow and we should be cautious. And I’ve been bold,” Richardson said.
He maintained that his spending proposals for the special session were “prudent.”
But some in the Legislature who deal with budget and tax issues aren’t so certain.
“I think it’s more of a time that we had better be careful rather than sorry,” said Sen. John Arthur Smith, a Deming Democrat and LFC chairman.
The revenue projections the state is basing its income numbers on has average natural gas prices at $11.50 for each thousand cubic feet of gas and oil prices at $134 a barrel.
But prices have dropped sharply in the past few weeks – reaching $9.55 for of gas nationally. Prices were above $13 per unit of gas at the start of July.
Gas prices in New Mexico tend to be lower, $8.71 per unit of gas Thursday at the Blanco Hub in New Mexico’s San Juan Basin.
Gas prices are critical for state government. Each 10-cent change in price translates into about $12 million in revenues for the state’s main budget account, according to the LFC. In contrast, each $1 change in the price of oil means about $4 million in revenue.
A $2 drop in the unit price of natural gas from the revenue estimate – roughly what’s happened recently – would represent about a $240 million decline in revenues annually for the state.
Oil prices have dropped to their lowest point in weeks – down to about $123 a barrel – potentially a $44 million annual revenue drop.
We hope the Legislature takes a long, hard look at this and does not act too quickly in throwing around money that may not be there.