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F I S C A L I M P A C T R E P O R T
SPONSOR Stewart
ORIGINAL DATE
LAST UPDATED
2/2/08
HB 626
SHORT TITLE Oil And Gas Emergency Tax Act Fund to Schools
SB
ANALYST Francis
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY08
FY09
FY10
(23,710.0)
(22,920.0) Recurring General Fund
56,780.0
55,400.0 Recurring Public School
Fund
(Parenthesis ( ) Indicate Revenue Decreases)
Companion to HB241 and others – See Companions below
SOURCES OF INFORMATION
LFC Files
Department of Finance and Administration (DFA)
Responses Received From
Energy Minerals and Natural Resources (EMNRD)
Public Education Department (PED)
SUMMARY
Synopsis of Bill
House Bill 626 raises the rate of tax under the Oil and Gas Emergency School Tax Act on oil and
oil and other liquid hydrocarbons to 4 percent, equal to that of natural gas. The lower rates on
production at “stripper" wells (wells that are nearing the end of their productive life) are also
repealed. HB626 also redirects 12.5 percent of the revenues from the oil and gas emergency
school tax to the public school fund, a fund that distributes funds to school districts according to
the state equalization guarantee.
Currently, the tax rate varies depending on the product: 3.15% on oil and on oil and other
hydrocarbons removed from natural gas at or near the wellhead; 3.15% on carbon dioxide,
helium and non-hydrocarbon gases; 4% on natural gas; 1.58% to 2.36% on oil and on other
liquid hydrocarbons removed from natural gas from a stripper well, depending on the average
annual taxable value, if the taxable value of oil does not rise above $18 a barrel; and 2% to 3%
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House Bill 626 – Page
2
on natural gas removed from a stripper well, depending on the average annual taxable value, if
the taxable value of natural gas does not rise above $1.35 per thousand cubic feet.
The effective date is July 1, 2008.
FISCAL IMPLICATIONS
The emergency school tax revenues are based on the value of production and so very dependent
on the price of natural gas and oil that New Mexican producers receive. In the recent past, these
prices have been much higher than normal but it is a volatile revenue stream and the revenues
being realized now may not stay at that level. As the table below shows, the revenues to the
public school fund are expected to be $56.8 million in FY09. Because the increase in the excise
tax does not equal the new distribution to the public school fund, there is a negative general fund
impact of $23.7 million in FY09.
Fiscal Impacts of HB626
FY08 FY09 FY10 FY11 FY12
School Tax base
426.32
421.18
410.70
400.28
385.03
School Tax w/ 4% rate for Oil and CO2
426.32
454.25
443.18
432.19
416.36
Public School Fund
56.78
55.40
54.02
52.04
Gen Fund
(23.71)
(22.92)
(22.12)
(20.71)
Net change, both funds
33.07
32.48
31.91
31.33
Source: DFA
This bill creates provides for continuing appropriations to a fund other than the general fund.
The LFC has concerns with including continuing appropriation language in the statutory
provisions for newly created funds, as earmarking reduces the ability of the legislature to
establish spending priorities.
SIGNIFICANT ISSUES
HB 626 is sponsored by the education funding formula task force, a task force that worked on
updating and improving the education funding formula that distributes money from the public
school fund to the local school districts. House Bill 241, the legislation that creates a new
funding formula, lays out the foundation for a new formula projecting the sufficient per-student
cost calculation for school districts and charters schools. It contains definitions and cost factors
consisting of: poverty, English language learners, special education, mobility, percent of district
enrollment by set grades and the weighted index of staff qualifications. It identifies the sufficient
per-student cost multiplier and guidance about how to complete the sufficient per-student cost
calculation. Methodologies are identified for factoring in growth; new school demographics;
special education; implementation of intervention strategies related to lowering special education
identification rates; annual updates of cost factors; and annual adjustment of the base per-student
cost based on appropriations. By using a simplified method, the formula is intended to minimize
“formula chasing" by some districts.
Oil and natural gas prices. The current consensus revenue group forecast show the price of oil
at all time highs for New Mexico and natural gas prices much higher than the historical level. As
the charts below show, the prices of both commodities are expected to flatten out or decline in
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House Bill 626 – Page
3
the forecast. Of more importance is the volume forecast. Both commodities are in declining
production states. There are also significant risks to production that could affect the revenues.
These risks include the new pit rule regulation proposed by the oil and conservation division of
EMNRD and the prospect of distribution bottlenecks at major hubs that accept New Mexico
products.
Price and Volume of Oil Production
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
Price (L)
Vol ume (R )
Source: Consensus Revenue Group December 2007
Price and Volume of Natural Gas
Production
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
-
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
1,800.00
Price
Vol ume
Source: Consensus Revenue Group December 2007
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
Companion bills:
HB 241 implements a new public school funding formula. HB51 mandates combined reporting
for unitary corporations. HB 398 increases the mileage for statewide property taxes by 5 mills for
public education funding. HB 311 increases the statewide gross receipts tax rate. HB 229 ends
yield control for school districts.
POSSIBLE QUESTIONS
How much of the total funding for the new funding formula will this proposal account for.
How will the repeal of the lower rates for stripper wells affect production.
NF/mt