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Environment

Biden drilling ban forces Democratic-led New Mexico to reckon with oil dependence

(Reuters) - When Stan Rounds heard about U.S. President Joe Biden’s plans to suspend new drilling on federal lands to fight climate change, he worried about the education budget.

FILE PHOTO: Drilling rigs operate in the Permian Basin oil and natural gas production area in Lea County, New Mexico, U.S., February 10, 2019. Picture taken February 10, 2019. REUTERS/Nick Oxford/File Photo

Rounds heads a state association of school administrators. He knows that New Mexico - home to the country’s richest oil fields on federal lands - depends heavily on drilling revenues to finance its struggling public schools. And budgets have already taken a hit from falling crude prices as the coronavirus pandemic sapped global fuel demand.

“While you appreciate the green policies for environmental issues, you can’t strangulate the revenue streams in New Mexico,” said Rounds, executive director of the New Mexico Coalition of Educational Leaders. “So we’re very concerned.”

New Mexico’s money troubles reflect the dangers facing oil-dependent economies around the globe at a time when volatile petroleum prices and rising concern about climate change pushes governments to transition to cleaner energy sources. And it points to an inconvenient truth that could undermine newly sworn-in Democratic President Biden’s promises to enact sweeping policy changes to address climate change.

Democratic politicians in a slew of oil-dependent states are being forced to reckon with a clash of progressive ideals: Their support for Biden’s plan to fight global warming could damage the fossil-fuel economy that has been a huge source of revenue for government programs.

Biden last month signed an executive order pausing new oil and gas drilling leases on federal lands in what is widely viewed as the first step to delivering on a permanent ban promised during his campaign for the White House. Such a policy could have a big climate payoff by eventually shutting down what now represents about a quarter of U.S. oil and gas production.

But it would also have a big public price tag. The U.S. federal lands drilling program yielded some $1.8 billion directly to states in 2020, supporting schools and other programs in places like Wyoming and Utah, according to data from the U.S. Interior Department. It also supports coastal erosion remediation efforts in hurricane-battered Gulf Coast states such as Louisiana that are among the regions most threatened by sea-level rise.

New Mexico, a Democratic-led state, is the biggest beneficiary of revenues from drilling on federal lands. Nearly a third of the state’s land is owned by the U.S. government and much of it overlies the Permian Basin, the world’s most productive oil field. Revenues from drilling on federal lands there soared 85% over the last decade to $707 million in 2020 - making up about a tenth of the state’s total budget. Much of that money goes to its schools.

A White House spokesman did not comment on the long-term financial impact on states of a potential permanent ban on new federal lands leasing, but said the near-term impact should be small because existing leases can continue to produce. Interior Department spokesman Tyler Cherry said the department had not set a timeline for its review of the federal leasing program but would “engage with diverse stakeholders across the country.”

New Mexico public lands commissioner Stephanie Garcia Richard said the new Biden administration drilling policies have increased the urgency of transitioning the state’s economy away from oil.

“It’s on our doorstep,” she said.

SCHOOLS WOULD SUFFER MOST

Economists for New Mexico’s Legislative Finance Committee, which draws up revenue projections for lawmakers, said the state could lose $12 million from canceled federal lease sales this year. But the longer-term impact would be much greater.

New drilling is critical to maintaining production levels. If no new wells are brought online, state oil production from federal, state and private lands could fall 70% after two years, the committee staff estimated.

“The longer it goes… the more potential it has to impact New Mexico,” said Stephanie Schardin Clarke, the state’s secretary for taxation and revenue.

That’s a big problem for New Mexico’s public schools, which receive about 45% of state appropriations.

The state’s school system is consistently ranked as one of the worst in the country based on standardized test scores and graduation rates. New Mexico Governor Michelle Lujan Grisham, a Democrat, campaigned in 2018 on a pledge to fix public education.

In 2019, Lujan Grisham told Reuters that she would seek a waiver for New Mexico from a potential drilling ban if a Democrat became president. But she has not elaborated on the idea publicly since, and declined a request for comment.

In a statement following the announcement of the leasing pause last month, Lujan Grisham said that it was “essential that climate change be prioritized” and that she would work with the Biden administration “to make sure New Mexico is protected and secure.”

Some legislators are now reluctant to approve school spending increases for fear of losing public oil revenues.

“New Mexico is going to have to be extremely careful about spending money over the long term,” Senator Gay Kernan, a Republican, said during a recent committee meeting as she explained her opposition to increasing the state’s contribution to a public education employees’ retirement fund.

WEANING OFF OIL MONEY

New Mexico has been concerned about its dependence on oil revenue since its share of the Permian Basin started to boom several years ago. The state has since been attempting reforms to diversify its economy and public revenue base. Lawmakers are weighing proposals to legalize marijuana, and in the coming years may consider taxing groceries, adding personal income tax brackets and providing more incentives for renewable energy.

An increase in personal income tax for its wealthiest residents will kick in this year.

“We deserve an economy that is not only sustainable in the long term, but not volatile,” said state Representative Angelica Rubio.

But time is of the essence, according to Javier Martinez, chair of the New Mexico House of Representatives’ taxation and revenue committee, who introduced a bill to legalize marijuana.

“We need to move more quickly,” he said.

So far, the ideas put forward are not big enough or fast enough to fully replace what oil and gas provides for the state’s budget, according to New Mexico’s public lands commissioner, Garcia Richard.

“Even our rosiest projections of are not easily going to make up for the loss of oil and gas revenue,” she said.

TJ Parks, the superintendent of the Hobbs Municipal School District in the heart of New Mexico’s oil producing region, told Reuters he worries the likely halt in new drilling will force oil companies to take their rigs -- and the taxes they pay -- to private land out of state.

“If they can’t get a lease on that land 60 days from now, there’s going to be some problems,” he said.

That means his school district, which can’t afford reading coaches or technology specialists, will likely miss out on needed investment.

“The problem is,” he said, “we’re a poor state.”

(The story refiles to add dropped letter to administrators in 2nd paragraph.)

Reporting by Nichola Groom, Valeria Volcovici and Jennifer Hiller; editing by Richard Valdmanis and Brian Thevenot

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