New Mexico Is Divided Over What to Do With $75 Billion in Oil Cash

The second-largest oil-producing state is also one of the poorest. How can it make its new wealth count? SANTA FE, N.M.—In a beige office park on the edge of town not far from a Walmart, waves of oil-and-gas money are crashing on Jon Clark’s desk.A New Mexico oil field in 2024.A flood of $7.6 billion arrived in 2024. Followed by an additional $5.3 billion in 2025. This year, Clark, New Mexico’s state investment officer, is projecting $5.4 billion.New Mexico’s oil-and-gas bounty has helped build a $75 billion investment fund that would be the envy of Wall Street. New Mexico has become the second-largest-producing oil state in the country, behind Texas, and soaring crude prices from the U.S. war with Iran are translating into another burst of revenue.The question for the state now: What to do with it?New Mexico is one of America’s poorest states, and many here in the state capital believe its relatively new oil wealth is its path to stability. That opportunity comes with inherent tension over what to fund now and how much to save for the future. Spending more of the money today will eat into the state’s safety net for the next time crude prices crater or the wells run dry.Chart 1It isn’t as simple as saving or spending. Some state officials are betting that shelling out on new programs now can help bolster the economy before the next bust.When energy prices were low early this year, about $160 million flowed into the largest bucket of New Mexico’s fund each month from royalties paid by energy companies pumping on publicly owned land. That jumped to $241 million in March after the Iran war sent crude prices higher. More cash is expected to arrive from taxes on oil-and-gas sales.“We’re going to increasingly be part of how the state pays for everything moving forward,” Clark said. “The potential for impact is almost limitless in the long term.”Clark leads the New Mexico State Investment Council, which manages a sovereign-wealth fund projected to hit $100 billion by the end of the decade, surpassing Alaska to become the country’s largest. The fund expects to pour at least $3 billion into the state budget this fiscal year alone, and officials project it will overtake the oil-and-gas sector as the state’s largest revenue source as soon as 2039.Jon Clark, New Mexico’s state investment officer, earlier this month.The windfall is helping the Democratic-controlled New Mexico government, under Gov. Michelle Lujan Grisham, to stabilize a revenue outlook notorious for the same volatility seen in the energy market. Through the sovereign-wealth fund, which comprises numerous smaller funds, officials have funneled more money into schools and college tuition, as well as a recently launched, first-of-its-kind statewide universal child-care program. Additional funding backs public-health initiatives and infrastructure projects.In a state with problems as varied and entrenched as New Mexico’s—from high overdose rates to lagging educational outcomes—picking spots is difficult. Lawmakers in recent years created several new funds dedicated to workforce development, mental health and child care.Chart 2Some have proposed tax cuts or bigger attempts to diversify the state economy. Others have even floated public ownership of an electric utility to prevent a proposed purchase by the private-equity firm Blackstone.Deb Haaland, the former interior secretary who analysts believe is the front-runner in the gubernatorial race this year, said she wants both to expand the fund and spend more of it today. Haaland is proposing a public-insurance option that would require sovereign-wealth fund money, though how much hasn’t been determined.“That’s investing in our people,” the Democrat said in an interview. “A lot of people across New Mexico say this is supposed to be a rainy-day fund, and it’s pouring rain outside.”State Rep. Gail Armstrong, a Republican lawmaker and House minority leader in New Mexico’s Legislature, said she favors putting excess oil-and-gas revenue away into trust funds, as the state is doing with some of the cash. But she also wants to see some of the money used for immediate tax relief such as eliminating the state’s personal-income tax to help New Mexicans absorb inflation at the grocery store and gas pump.Armstrong said she was especially concerned about creating trust funds for programs whose costs would invariably increase—like universal child care—as opposed to those whose costs she viewed as more predictable and stable, such as a fund to help the state’s aging transportation infrastructure. And she said she is worried about the impact if the state’s oil-and-gas revenue slowed significantly in the years or decades ahead.“When I came into the Legislature 10 years ago, we had no capital outlay,” Armstrong said. “We were sweeping every crack, crevice and corner just to balance the budget. And so I know what it’s like when it’s in a downturn, and I remind my colleagues of that all the time.”Last month, the state’s legislative finance committee put out a report evaluating the $2.6 billion New Mexico invested in additional K-12 funding between fiscal year 2018 and fiscal year 2027 from both oil-and-gas revenue and the sovereign-wealth fund. The money was supposed to allow schools to increase instructional days and improve outcomes, yet the report said little of either occurred.A school in Santa Fe, N.M., earlier this month.“Spending today, say, on education, could have long-term positive results but only if done well,” said Charles Sallee, director of the committee. Sallee said the Legislature’s priorities were to balance spending from the various trust funds on early-childhood education and other social programs with ensuring that the state’s general fund was solvent enough to keep taxes down.New Mexico’s nascent free child-care program relies on a new trust fund created in 2020, which has grown from the $300 million that seeded it to $11.7 billion. Under rules passed by lawmakers that govern the fund, at least $500 million can be drawn annually to fund the child-care initiative.Following the program’s launch in November, some 46,000 children are now getting child care subsidized by the state. That number is expected to grow to around 59,000 by fiscal year 2029, according to state estimates.Countries that amass such wealth have at times fallen victim to the so-called resource curse, tethering their fortunes so closely to oil that it crowds out other investments and leaves economies exposed to rampant inequality and painful busts.In New Mexico, where drillers pump more crude than nine of the 11 member nations in the Organization of the Petroleum Exporting Countries, officials are now following the lead of countries from Saudi Arabia to Norway in building nest eggs and backing programs beyond fossil fuels. Texas has taken a similar approach to supporting education and creating a rainy-day fund, while Alaska’s permanent fund supports services and cuts dividend checks to eligible residents.Hobbs, N.M., a community in the state’s oil patch, in 2024.Clark, New Mexico’s state investment officer, estimated that the fund missed out on $700 million of gains last year because it held too much in relatively safe public debt rather than investing in higher-risk—and potentially higher-return—private markets.Private-equity firms and venture capitalists have taken note and are now drowning his staff with as many as 500 pitches a year. Clark is trying to expand his team further to increase investments in industries including advanced energy, aerospace and defense, and tech.States that rely on fossil fuels for revenue can have billions in the bank, but that isn’t the same as robust job creation or population growth, the traditional drivers of state wealth. If New Mexico isn’t careful in its spending, it could see its riches diminish without much meaningful change.“These permanent funds do not make us rich in an ordinary sense,” said Reilly White, a finance professor at the University of New Mexico. “But they make us unusually liquid for a poor state. That liquidity creates opportunity, but also temptation.”Write to David Uberti at david.uberti@wsj.com and Dan Frosch at dan.frosch@wsj.com