A new study issued this week shows New Mexico is striking an important balance between generating revenue for our state and maximizing the economic opportunity from our significant energy resources. Of the nine states analyzed, New Mexico received the largest share of revenue relative to the value of our oil and natural gas production.
The study comes as some New Mexico officials argue for even higher royalty rates on oil and natural gas production in the state, presumably to “match” the rates of neighboring states.
However, the study by the New Mexico Tax Research Institute and accounting firm Moss Adams concluded that New Mexico received 20.7% of total oil and gas production value in taxes, royalties, and other income in 2017, which is far more than any other state. The state with the next highest total was Wyoming at 15.3%. Texas, which shares the Permian Basin with New Mexico, received a 14.9% share of revenue.
Besides New Mexico, Texas and Wyoming, the other states examined were Colorado, Kansas, Montana, North Dakota, Oklahoma, and Utah. The study looked at what each state received in tax revenue, land income, fees, and regulatory costs.
Only Texas and Montana, each at 12.8%, had a higher rate than New Mexico’s 11.5% in tax revenue as a percentage of estimated production value.
Additionally, New Mexico receives far more in royalty revenue from both state trust land and federal oil and gas leases compared to the other states. In fiscal year 2017, the study estimates New Mexico received 9.2% of production value from land revenue. The next highest was Wyoming at 5.4%.
The New Mexico Tax Research Institute summarized its findings:
Although revenue contributed by taxation of oil and gas production in New Mexico is in the upper tier of the surveyed states, the direct contributions from royalties on New Mexico production sets New Mexico apart from the other states analyzed. New Mexico taxes oil and gas production at rates that provide revenue contributions consistent with the highest percentage share of production values earned by the industry in the eight other states investigated. If tax policy impacts the industry’s investment and production decisions, then changes to how the industry is taxed in New Mexico could impact the competitive market position of the state’s producers.
More than 80% of both oil and natural gas production in New Mexico takes place on state or federal lands, so policies affecting development on government-owned land could have an out-sized impact in our state.
In fiscal year 2018, New Mexico received $634.9 million in federal energy revenues, which made us the top recipient. Revenue is also generated for public schools and other trust land beneficiaries by monthly oil and gas lease sales, such as the one in November that netted more than $43 million.
The study demonstrates that New Mexico’s current mix of royalties, taxes, and land income from oil and natural gas production balances economic development with generating government revenues. As a result, lawmakers are currently working with a $1.1 billion state budget surplus and have the opportunity make the kind of investments in our schools, public safety, and infrastructure needed for long-term prosperity.