NM revenue increases $850M due to Iran war, state economist estimates

The ongoing war in Iran means $850 million more will flow into state coffers by the end of the current fiscal year ending June 30, according to new projections from the New Mexico Legislative Finance Committee.

The projected windfall results from a sharp increase in the price-per-barrel of oil since President Donald Trump began an armed conflict with Iran in February, LFC Chief Economist Ismael Torres told lawmakers on the interim Revenue Stabilization and Tax Policy Committee on Thursday.

For every $1 increase in the annual average price of oil, New Mexico — the nation’s second-largest oil producer — sees a little over $57 million in increased revenue, Torres said.

So the roughly $15 increase in the annual average price — from the $58 a barrel economists expected before the war to the $73 a barrel they project now — translates to roughly $850 million in new revenue, according to LFC estimates. 

All of that funding will benefit trust funds the state has established in recent years as repositories for surplus revenue that also generate returns to fund various programs. 

Specifically, the trust funds that will receive the $850 million include the Early Childhood Trust Fund, which is paying for universal childcare; the Medicaid Trust Fund, which pays for low-income health care; and the Behavioral Health Trust Fund, which provides long-term financing for behavioral health programs statewide. Torres did not specify Thursday how much each trust fund will receive.

Torres noted, however, that the “great news” about the new funding for the trust funds is offset by what the oil price increases mean for New Mexico households. He cited a recent Moody’s Analytics report showing that average costs to households have increased $750 a month due to the war in Iran. 

That figure includes sharp increases in the price of gasoline. New Mexico’s average price per gallon has increased roughly $1.40 since February, according to AAA. 

Moody’s also estimates that a recession will result if oil prices reach $120 a barrel.

In that scenario, “The pressure on household budgets will become so great that there’s a decline in economic activity, and we’re currently on track for that,” Torres told lawmakers.

New Mexico Rep. Micaela Lara Cadena (D-Mesilla) said the apparent contradiction from the war in Iran’s impacts — a windfall for the state, hardship for families — makes it all the more important that the state spend the new money wisely. 

“For me, it’s a moral obligation to think closely and to name out loud that a war is causing a surplus in our trust funds,” she said. “I hope we hold the purpose of those funds very close to heart, and make sure that when we raise money, when money comes to our coffers like that, that we spend it and spend it well.”