Wednesday, August 05, 2015

On The Econ Beat: Sinking Oil Prices Again Eyed For Impact On NM, State Sen. Continues Push For Drastic Tax Overhaul, Denver Economy Explodes Upwards And Google Ends Its NM Search 

We like to check in from time to time on the latest oil price as it is so key to the state budget and the services New Mexicans get. Right now a barrel of the black gold has slumped back to the $46 a barrel area. That's well below the $56 a barrel the state is depending on as the average price in the current budget year. If we averaged $46 for the year the experts say that would mean at least a $70 million drop in tax and royalty revenue. Not huge but significant in a $6.2 billion budget. With that background we now turn to our self-proclaimed Energy Alligator:

US producers are finding ways to massively cut costs and increase production. This means oil can be produced profitably from the best shale acreage in New Mexico's Permian and San Juan Basins at the $40-$50 level. With these sorts of advances more and more acreage will become profitable to produce. The same thing is happening with natural gas. It's economies of scale and better technology making this possible. While estimating oil prices is like reading tea leaves, the trend appears to be strongly down. As New Mexicans we need to be prepared for the revenue and budget impacts we could see in the next 5 years. What will our share of federal royalties be? How will our Land Grant Permanent Fund be affected? Will there be "new" money for our legislators to spend? Or will we be scraping the bottom of the barrel looking for more money for education and Medicaid?

Thanks for that Energy Gator. We hear much from the anti-government conservatives about how dangerous it is for New Mexico to depend so much on federal spending which is under pressure. But if that's "dangerous" what about our dependence on oil and natural gas for revenue? It makes up some 20 percent of the state's general budget. And that leads us to this . . .

San Juan County GOP State Senator Bill Sharer continues to pound the table for repealing the over 350 exemptions from the state gross receipts tax and replace it with a flat 2 percent GRT on all purchases. Those exemptions are fiercely protected by those benefiting. Getting rid of them may be as hard as getting a gun out of the hands of the NRA president. But. . .

If energy prices stay low for the next five years and we aren't generating enough revenue from other economic activity to compensate, something has got to give. Medicaid and public education budgets can't be denied and the hunt will be on for new revenue. Sharer's hit on the exemptions is the first volley fired in what we expect to be a louder and more intense debate over tax policy as lawmakers grapple with new thinking in this new economic era.

By the way, those $350 a pop Carlsbad hotel rooms that we saw at the peak of the latest oil boom are history. A check on Expedia shows hotel suites down to about $199 and a budget hotel at around $75 a night. That's still pricey for the SE oil area, but at least the tourists can now get a place while they visit the Caverns.


As we blogged this week, Forbes named Denver as the #1 city in the USA for business and careers. Hard to believe that is only 8 hours north of us here in sluggish River City. Reader Michael Lamb sends this in that shows just how white-hot the Mile High City has become:

Metro Denver tenants snapped up an additional 4,550 apartments in the second quarter, but the robust new supply wasn't enough to keep rents from rising and vacancy rates from falling, according to the Denver Metro Area Apartment Vacancy & Rent Report. For comparison, metro Denver's apartment market absorbed 8,631 additional units in all of 2014, up from 4,613 units in 2013 and 3,368 in 2012, according to the report, There were only four other times in the past 25 years that the Denver area absorbed such a high number of units as it did in the second quarter, noted Mark Williams, executive vice president of the Apartment Association of Metro Denver.

And get this. The average apartment rent in Denver is now a record $1,265 but if you're generating high-paying jobs that's not a problem.


Back here, the Governor and policymakers down the chain take a hit as Goggle announces it is moving the Moriarty drone factory it bought only last year from Titan Aerospace. It will be moved to the San Francisco Bay area and presumably with it 40 jobs.

It's not so much the economic impact but the prestige of having one of the most valuable companies on the planet with a NM presence. That helps the state get notice with other major firms. State Economic Development Secretary Jon Barela has been out touting  improvement in the state's exports, but he sure didn't expect Google to export itself out of here.  Don't call the Guv for coffee today, Jon. She might not be in the mood to see you.


Reader Michael Caplan in Grants returns us to the crime beat to complete the Wednesday blog:

Joe, Everyone seems to want the judges to put more people in jail, but no one seems to want to pay to build and run those jails. You get don’t get what you won’t pay for.

This is the home of New Mexico politics.

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