Much of the state’s revenue windfall is due to record high oil production and high oil prices, in addition to improving economic activity in retail and some other sectors.
The 2022 Legislature will get underway on Tuesday, Jan. 17, for 30 days. Although this session will primarily be devoted to budget and revenue matters, we anticipate there will likely be legislation introduced that will be of concern to our industry and other bills that we can support.
In August, revenue estimates released by executive and legislative economists projected legislators could have $1.4 billion in new money available for the next budget year starting in July 2022. The new money is calculated as the difference between expected revenue and the state’s current $7.4 billion budget. The revenue total does not include the $1.1 billion in federal funds from the American Rescue Plan Act. The New Mexico Supreme Court recently ruled that the governor cannot spend those funds without legislative approval. Consequently, those federal dollars will likely be included in the state budget bill for expenditure in the next state fiscal year. Although much of those plans were appropriated by the legislature during the December special session of the legislature.
In late November, state economists announced revenue levels were approximately $30 million greater than the August forecast. Much of the state’s revenue windfall is due to record high oil production and high oil prices, in addition to improving economic activity in retail and some other sectors. Higher than expected personal income tax collections also added to the robust revenue picture.
As a reminder, the 2022 session, as with all 30-day sessions, is limited by the state constitution to bills dealing with state budget and revenue issues (appropriations and tax measures), legislation the governor asks the legislature to address, and bills vetoed by the governor in the previous legislative session. If legislation is introduced that was not in one of those categories, it is not considered “germane” and therefore not allowed to move through the process. However, this limitation does not apply to proposed constitutional amendments, which can be introduced in any legislative session, require only a majority vote in both chambers, and are not subject to approval or veto by the governor. Memorials and resolutions are also allowed in the short session.
In a recent report from the New Mexico Tax Research Institute, it was reported that the New Mexico oil and natural gas industry provided $5.3 billion in state and local tax revenue for fiscal year 2021. This is the highest amount recorded in New Mexico history.
Oil and Gas Report
In a recent report from the New Mexico Tax Research Institute, it was reported that the New Mexico oil and natural gas industry provided $5.3 billion in state and local tax revenue for fiscal year 2021. This is the highest amount recorded in New Mexico history. Revenue increased more than $500 million from fiscal year 2020 on production growth and improving market conditions, as New Mexico also became the second-largest oil producer in the United States.
The $5.3 billion in 2021 revenue surpassed the previous industry record of $5.16 billion set in fiscal year 2019. The industry’s taxes and revenue support $2.96 billion in state general fund revenue, $358 million in local taxes, and $1.95 billion in other state taxes, royalties, and revenues. Revenue from federal mineral leasing remains the largest single source of income at $803 million, down slightly from $811 million in fiscal year 2020. Higher than average production coupled with improving market conditions were the primary drivers of revenue growth.
Industry revenue accounts for 35% of the general fund, supporting all areas of state spending such as education, public safety, economic development, healthcare, among others. Public schools continue to be the largest beneficiary of oil and natural gas revenue, with $1.04 billion going to public education and $275 million going to New Mexico universities, colleges, and other institutions of higher education.
New Mexico Banks’ Economic Impact
Banks support New Mexico’s economy with consumer, business, and other loans and by providing more than 8,000 residents with a great place to work. The following statistics based on 2020 data point out how important banks are to New Mexico:
- Employment
- 8,274 employees
- $838.5 million in total annual compensation and benefits
- 32 banks headquartered in New Mexico
- Lending
- $5.1 billion in new home loans booked in 2020
- 20,855 new home loans in 2020
- $205,000 in median new loan amount in 2020
- $2.1 billion in Paycheck Protection Program (PPP) loans facilitated
- 19,155 PPP loans
- $30,508 median PPP loan
- 257,700 jobs supported by PPP
- Customers
- $39 billion in deposits
- 1.8 million customers
- 56 banks operating in branches
- 448 branches and offices
- Community Support
- $41 million in community donations
- 49,100 volunteer hours
Public Bank
In October, several bankers, including Lonnie Talbert, Jay Jenkins, Jason Wyatt, Angel Reyes and Jed Fanning testified before the Legislative Finance Authority Oversight Committee against creating a public bank. As part of our testimony, we suggested that before the legislature is asked to consider the merits of a public bank, members should consider the issue as if the state were creating a de novo bank. Consequently, there should be a requirement that the organizers follow the FDIC and NM Financial Institution requirements for organizing de novo banks. Specifically, the requirements for de novo banks stipulate:
- Submit an application to FDIC and NM Financial Institutions Division (FID) to include:
- A mission statement
- A business plan with three years of financial projections
- Policies for loans, investments, and other operations of a de novo bank
- Regulators will review applications and recommend any modifications
- A de novo bank may open only after receiving approval from the FDIC and FID
Regulatory Orders:
All de novo banks are subject to no less than one order proving that regulatory requirements are met and are issued concurrently with approval to open
A. FDIC order includes that deposit insurance is approved and remain in place for seven years
B. FID order provides charter is approved and contains provisions similar to the FDIC order
Order Provisions:
- Unique to each de novo bank with some provisions being satisfied before the bank opens and other provisions are ongoing requirements
Compliance with Order:
- Noncompliance with order to include monetary fines against bank, board, and senior management
Ongoing Provisions:
- Order sets minimum capital level and capital should never decline below the minimum
- Must adhere to the business plan and the bank must operate within FDIC-approved business plan
Deviations:
- Deviating from a business plan is the most common deviation
- All orders granting deposit insurance require a bank to receive prior approval from FDIC before any deviation
- Banks must contact FDIC immediately to discuss areas deviated from without prior approval
Deviations That Require Prior Approval:
- Changes to the balance sheet of off-balance sheet
- Changing funding structure
- Lending outside of approved activities
Ultimately, the legislative committee chose not to endorse the state bank legislation. However, we anticipate that public bank legislation will be introduced in the 2022 Legislature.
