Pub. 13 2016 Issue 3

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S Issue 3 • 2016 9 6.2% compared to 4.9% nationally. The sectors reporting growth include health care and social assistance, pro- fessional and technical services, and leisure and hospitality. The oil and gas industry continues job loss, shrinking by 26% over the year. The UNM Bu- reau of Business and Economic Re- search projects the state’s modest job growth will peak in 2018 and slow in later years. The state’s best hope is that oil and gas prices will rise. As a rule of thumb, a $1 change in the price of oil, sus- tained over the course of a full fis- cal year, brings about a $9.5 million change in state general fund revenue. For natural gas, a $0.10/mcf changes in price leads to a $6.5 million change in general fund revenue. The decline in oil prices and fall in that industry’s employment has sig- nificantly impacted gross receipts tax- es with revenues down $138 million or 6.6%-comparing FY16 to FY17. Com- paring the same fiscal years, there has been a 44% decline in mining sector gross recepits, and a 27.1% decline in manufacturing. Corporate income tax revenues for FY16 declined to about half of the FY15 level due in part to 2013 state legisla- tion which provided for a phased-in rate reduction and single sales factor appointment, allowing certain com- panies, including manufacturing op- erations, to claim less revenue in New Mexico. These two changes were used by the state in projecting future corpo- rate income tax revenues, which sig- nificantly contributes to the continued declines of -16.7% in FY17 and -12% in FY18. Another important contributing factor in the sharp decrease in corpo- rate income tax revenue is the fall in oil and gas drilling activity. Conse- quently, with expectations of a moder- ate recovery in oil prices, corporate in- come tax is not expected to regain the strength it had when oil prices were at record highs. Recently, in its oil market report, the Paris-based International Energy Agency (IEA) reduced its forecast for global demand growth to 1.3 million barrels a day in 2016-100,000 below the previous forecast. The IEA also an- ticipates a slowdown in 2018, down to 1.2 million barrels per day. The IEA, which represents 29 major oil import- ing countries including the United States, indicates that supplies from OPEC are running at record levels, especially in Kuwait and United Arab Emirates. Needless to say, the 2017 Legislature faces some tough decisions on where to cut budgets and programs and how deeply. Hopefully, that the 112 mem- bers of the Legislature and the Gov- ernor will somehow come up with an equitable solution. President’s Council of Eco- nomic Advisors- The Perfor- mance of Community Banks Over Time A recent report from the White House Council of Economic Advisors (CEA) titled “The Performance of Community Banks Over Time” states that the regulatory environment that has been in effect since the pas- sage of Dodd-Frank in 2010 has not harmed community banking. One wonders if the council sought input from the affected industry. Based on my review of the report, I sincerely have my doubts. The thought that the Dodd-Frank Act-which has resulted in 20,000 plus pages of new bank compliance rules-has not impacted community banks is ludicrous. The banking industry has consolidated substantially since Dodd-Frank was enacted. Since 2010, there are 1,708 or 22% fewer banks. It is important to note that during the same time period, there were no new charters granted in New Mexico by the feder- al or state regulators and only seven across the country. In a letter to the CEA, ABA President and CEO Rob Nichols wrote: “Sad- ly, the forces that have acted to stop new bank charters are the same ones that have led to the dramatic consol- idation of the banking industry-ex- cessive and complex regulation that are not tailored to the risks of specif- ic institutions. Beyond Dodd-Frank, there are new capital hurdles, unrea- sonable regulatory expectations on directors, funding constraints, and in- flexible regulatory infrastructure, and tax-favored competition from cred- it unions that weight on community banks. These-not the local economic conditions-are often the tipping point that drives small banks to merge with banks typically many times larger and is a barrier to entry for new banks. The question that the CEA should be asking is how prudent regulatory relief will contribute to economic growth. Stemming the tide of consolidation in the industry will help preserve the unique banking system that has led to the strongest economic country in the world. If we continue to watch the in- dustry shrink by one bank every busi- ness day, the availability of financial services will decline, particularly in the thousands of smaller communities where the bank is the only financial in- stitution serving the area.” n The state’s best hope is that oil and gas prices will rise. As a rule of thumb, a $1 change in the price of oil, sustained over the course of a full fiscal year, brings about a $9.5 million change in state general fund revenue. For natural gas, a $0.10/mcf changes in price leads to a $6.5 million change in general fund revenue.