Where Oil Funds a New Deal

New Mexico is using a tax windfall to pay for moonshot social programs

- Catarina Saraiva and Olivia Rockeman

New Mexico this year became the first US state to offer free college to its residents and free child care to most families, all on the back of soaring revenue from royalties and taxes on oil and gas production, which are booming on its patch of the Permian Basin. The state now ranks behind only Texas in energy production.

With support from local legislators, Governor Michelle Lujan Grisham, a Democrat, is parlaying the record receipts into programs that could lift incomes for many of New Mexico’s 2.1 million residents and ultimately reshape its economy. “New Mexico is so reliant on oil and gas, and these past couple of years have been very good,” says state Representative Derrick Lente. “But it’s not going to last forever, and we have to be smart in regards to how we invest now and how we prudently use these types of dollars to make great change that will last generations.”

Almost 17% of New Mexico’s population lives in poverty—the third-highest proportion in the US. The state’s high school graduation rate, at 75%, is the lowest in the nation. Unemployment was 5.3% in April, compared with 3.6% for the whole country.

Free college and child care are policy moonshots that have eluded progressive Democrats at the federal level. Provisions that would have nudged the US in that direction were part of President Joe Biden’s Build Back Better proposal, but it stalled because Democratic Senator Joe Manchin of West Virginia worried that increased government spending on social programs would contribute to high inflation becoming entrenched.