A House committee has advanced a bill to cut or even eliminate state income taxes for many working New Mexicans -- but also added a tax hike for oil producers, stirring opposition from Republicans and the industry.
To cap a day of setbacks for oil and gas, another House committee voted later Friday to advance a measure to increase the royalty rate, or a charge oil producers pay based on the value of oil or gas they extract.
House Bill 14, which passed the House Taxation and Revenue Committee on a 7-5 vote Friday morning and now heads to the full House, would replace the state's Working Families Tax Credit with an Earned Income Tax Credit, eliminating state income tax liability for single people making less than $25,000 a year and childless married couples making less than $30,000 a year.
The thresholds go up with the number of children; married couples with three children would need to make more than $70,000 a year to have any tax liability.
The amendment would add an extra 0.28% "oil and gas equalization surtax" when crude prices are $55 a barrel or more, which when added to the existing tax effectively raises the rate to 3.4%, said Rep. Derrick Lente, D-Sandia Pueblo, who chairs the House Taxation and Revenue Committee.
This would bring in an extra $130 million a year, he told the committee. It would also cut the rate on natural gas producers by one-tenth of 1% to 3.9%, which would reduce the amount collected from them by $11 million a year.
"For several years now, we have cut taxes for working people and made our tax code more reflective of our state's values," Lente said in a statement Friday. "Today, we are doubling down on our investments in workers and families, while making sure that the industry profiting from the extraction of our state's natural resources pays its fair share."
The amendment had its origins in House Bill 548, introduced by Rep. Nathan Small D-Las Cruces, chair of the House Appropriations and Finance Committee. As originally written, the measure would have boosted the tax on oil to 4% to make it the same as natural gas. Lente said the amendment was a response to concerns with the original proposal.
"The fact of the matter is, he listens," Lente said. "We listen. We listened."
Supporters of HB 14 said it makes sense to use revenue from a wealthy industry to cut taxes for less-wealthy New Mexicans.
Camilla Feibelman, director of the Sierra Club's Rio Grande chapter, said natural resources such as oil and gas belong to the public and are mostly drilled on public lands.
"We stand in strong support of ensuring that those natural resources support our families first and foremost," she said.
Democrats framed the tax credit as a way to help during a time of economic uncertainty amid rising prices rise and increasing odds of a recession.
"We don't know how unaffordable life will become over the next few years, so New Mexico is stepping up to ensure that you can keep more of your hard-earned money so that you can afford staples from food, medicine, health care ... energy, whatever the case may be, said House Speaker Javier Martínez, D-Albuquerque.
Opponents mostly didn't object to the tax credit but to the tax increase on oil producers, which they worried would be passed on to consumers and hurt producers or even drive some out of the state.
"We say we love this industry, but at this point, I think there's been over 23 bills that have negatively impacted this industry that have come through this body" this session, said Rep. Jonathan Henry, R-Artesia.
"The more that break-even price goes up, the quicker the industry shuts down," Henry said. "When that industry shuts down, what happens to our budget in New Mexico?"
Some questioned the wisdom of tying "an ongoing tax credit to volatile oil and gas revenues," as Alison Riley, public policy director of the New Mexico Chamber of Commerce, put it.
"The chamber is proud to support working families, but with $3 billion in new revenue, there is plenty to fund priority programs ... without a tax increase," said Terri Cole, president and CEO of the Greater Albuquerque Chamber of Commerce.
In a statement after the vote, the New Mexico Oil and Gas Association said HB 14 was "originally a good bill" that was "hijacked."
"Instead of raising taxes, the Legislature should prioritize policies that drive down consumer costs, foster economic growth and diversification, and protect the energy workers that are the backbone of many communities across our state," said Missi Currier, the organization's president and CEO.
Senate Bill 23, which the House Appropriations and Finance Committee voted 9-8 to advance Friday evening, increases the maximum royalty rate from 20% of the value of the oil or natural gas to 25% in certain areas. That hike, according to a Legislative Finance Committee analysis, could generate from $50 million to $75 million in additional revenue to the state's land grant permanent fund. A separate State Land Office analysis estimated it could eventually boost additional annual revenues by $50 million to as much as $84 million.
State Land Office Deputy Commissioner of Operations Sunalei Stewart said 25% royalty rates are already relatively standard for oil production on private lands, including in New Mexico, and that the agency has a legal obligation to charge oil companies the market rate for public resources.
"This is not anti-oil and gas. This industry contributes a tremendous amount, and we appreciate that -- the school kids benefit," he told lawmakers. "But it is our job to ensure that we're getting that market rate."
However, industry advocates and Republican lawmakers worried the bill would contribute to driving oil and gas companies away.
"It almost seems punitive to me," said Rep. Harlan Vincent, R-Glencoe. "... We're not treating oil and gas like we should be treating oil and gas."
Rep. Matthew McQueen, D-Galisteo, said the state's exceptional land parcels for oil production would help keep companies here, noting that even if their expenses were a little higher, their profits would be high too.
"We're talking about the best of the best, which are not only the best in the Permian [Basin], but potentially some of the best in the world," he said. "... It has never once been suggested that these parcels would not find willing bidders."
New Mexican reporter Esteban Candelaria contributed.