The oil and gas industry in New Mexico contributes a major chunk of money to fund construction projects at public schools and universities around the state — but not quite as much as it claims, according to the chief financial officer of the Public School Facilities Authority.

The oil and gas industry “provides over 90 percent of all school capital investment through the Permanent Fund,” according to information on the New Mexico Oil & Gas Association’s website and pamphlets handed out at the Roundhouse during legislative sessions.

But Eaton, who oversees the Public School Facilities Authority, said that’s not the case.

“That’s a false statement right there, because we don’t get our funding from the Permanent Fund,” he said. “The Severance Tax Permanent Fund and the Land Grant Permanent Fund have an annual distribution to the General Fund for general operating, based upon a formula set out by the state constitution, but there’s no funding that comes from the Permanent Funds to fund public school capital outlay.”

Representatives from the New Mexico Legislature, the Legislative Finance Committee and the Public School Facilities Authority, as well as the house majority counsel on financial affairs, were unable to produce the exact contribution from oil and gas into the Permanent Funds.

Contributions from oil and gas companies occur throughout the year from hundreds of different sources and are difficult to track.

Severance taxes and land grants provide money to the two New Mexico permanent funds, according to the State Investment Council’s website.

Severance taxes are collected from anything pulled out of the ground in New Mexico, while land grant taxes are collected from leases on public land.

The oil and gas industry is a large contributor to both permanent funds, said Dennis Hazlett, the house majority counsel on financial affairs. He said the industry contributes to the Severance Tax Permanent Fund every time they remove resources from the ground, and since most oil and gas extraction is done on public land, it also contributes to the Land Grant Permanent Fund.

The Permanent Funds act as reserves of money and are not meant to be spent on recurring expenses such as salaries, Hazlett said. Those expenses come out of the General Fund.

New Mexico Oil and Gas Association President Steve Henke said money from the Severance Tax Permanent Fund pays off General Fund bonds that were used for capital outlay, or, in other words, construction projects.

“Of the contributions received by the severance tax by statute, 87.5 percent goes to paying off and servicing bonds that were issued for capital outlays,” he said. “And that would be buildings and infrastructure and so forth, and a lot of that is related to the school system.”

Henke said this means the assertion that school capital outlay funding comes from the General Fund and not the permanent funds is irrelevant.
“I think it’s just a matter of semantics,” he said. “Certainly, the school districts issue the bonds, but the Severance Tax funds service a lot of the bonds.”

Even accounting for the capital outlay money transferred from the permanent funds to the General Fund, less than 90 percent of capital outlay money for school construction projects comes from oil and gas, Eaton said.

“I can’t say that 90 percent of all capital outlay projects is funded by oil and gas. That’s just not a true statement,” he said. “There’s also general obligation bonds. There’s direct legislative appropriations. There’s the state portion, which is oil and gas.”

House Majority Leader Ken Martinez said the oil and gas
industry is required to pay into the permanent funds because it’s extracting resources that belong to New Mexicans equally.

“The oil and gas that they’re removing belongs to the state of New Mexico,” he said. “The state of New Mexico has the property, right? It belongs to all of us. There are some private oil and gas leases, but a huge percentage of them are when they’re drilling on public property.”
He said the Severance Tax Permanent Fund was created in the 70s to ensure the money made from oil and gas extractions could benefit the state in the future.

“We have what’s called a Severance Tax Fund, which is a public fund, started in the mid-70s. And what that fund said is that, ‘OK, every time you remove something from New Mexico, it doesn’t just belong to us today. It belongs to future generations of New Mexicans,’” he said. “So every time you take a dime out, you put a dime in. So every time you take a chunk of coal out, that’s severance. Severing it from the Earth is going to be taxed.”