NEW MEXICO (KRQE) – Crude oil markets plunged overnight over continuing concerns of the coronavirus. It caused one of the biggest stock market drops in years.

The price per barrel drop will have a direct effect on New Mexico’s budget. With the state’s booming oil industry having big questions, it caused the governor to make vetoes.

“So as people make decisions to reduce travel to, airlines cancel flights, as people work from home instead of traveling to work, our industry is impacted,” said Ryan Flynn, the Executive Director of the New Mexico Oil and Gas Association.

Oil prices have dropped $26 a barrel, which the state was relying on for its budget. “When you see people using less of your product than you will adjust your production to respond to that,” said Flynn.

As a result, the state budget is in jeopardy. Thirty-nine percent of that budget relies on the oil and gas industry, causing concern among lawmakers. “We were on the floor saying this is not sustainable, we are going to implode in the future, and I honestly thought it would be in the distant future but today when I saw the crash in the oil and gas… I’m really worried,” said State Representative Jason Harper, a Republican representing Sandoval County.

Harper isn’t alone. His constituents on the other side of the aisle are concerned too.

“In the event, we don’t have stability, then we’re gonna have to look at other issues in the budget on the reoccurring side,” said John Arthur Smith a Democrat representing South East New Mexico.

Now representatives from across the state have asked the governor to look at the budget and make vetoes to compensate for the money that won’t be coming in. “Honestly a lot of those options are not very great because you can’t just reduce a funding level, you have to line item the entire amount,” said Harper.

The Governor’s Office released a statement saying they are monitoring the situation closely, and say she will be making certain specific vetoes to counteract the potential of revenue projections dropping to ensure the state’s reserves are in good shape.

The governor has until Wednesday to sign off on the budget. Her office says if she were to sign the bill as is, there would be close to $110 million in the operating reserve account.

Governor Michelle Lujan Grisham’s full statement:

We are monitoring the situation very closely. The governor is always concerned about revenue projections and the impact of oil price fluctuations on the state’s budget. These concerns have naturally impacted the governor’s analysis of House Bill 2 and her evaluation of the remaining appropriations. To be clear, the budget was and is fiscally responsible, and includes several well-intentioned long-term measures, such as the highest ever reserve target (25% — which is likely to increase) and the Early Childhood Trust Fund, which is doubly beneficial as both a revenue-generating investment and a mechanism to shield the general fund from the boom and bust cycle. That said, the governor will be making certain specific vetoes to counteract the potential of downward revenue projections and ensure the state’s reserves are as robust as they need to be.

Although the situation is dynamic, based on the analyses we’ve seen, the governor is confident House Bill 2 was crafted soundly enough to avoid any need for a special session. For context, one analysis from the state: If oil prices were to decline to $30 per barrel and stay there through June 2020, the average price of oil would fall from the budgeted amount of $52 to $46 per barrel. This would have an estimated primary negative impact of $138M to the general fund in FY20. As of right now, if the governor signs the budget bills, she would have $109.5M available in operating reserve account for FY20 to address a revenue shortfall. That amount will increase based on pending vetoes of specific appropriations that the governor is considering.  

That amount of money that could be needed in an emergency setting could also could be bolstered by the roughly $2B in overall reserves estimated for FY21, which begins in July (though accessing those funds would require legislative action).

Statement from the Governor Michelle Lujan Grisham’s Office

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