The state Legislature in New Mexico has passed a bill that aims to increase royalty rates for new petroleum development on crucial state trust lands, particularly in the Permian Basin area known for its significant oil production.

The bill proposes raising the top royalty rate for oil and gas development from 20% to 25%, with the aim of maximizing returns on state assets that support public schools, universities, and hospitals. The Federal Reserve Bank of Dallas reports that the Permian Basin contributed to 46% of U.S. oil production in 2023.

The push for this change has been ongoing, spearheaded by Public Lands Commissioner Stephanie Garcia Richard. Advocates argue that the move aligns with practices in neighboring Texas, where similar rates are already in place for state trust lands within the Permian Basin.

Those against the rate increase express concerns that it could negatively impact both petroleum producers and the beneficiaries of public funds, especially considering the already substantial taxation on oil production and the volatile nature of commodity prices.

Garcia Richard emphasized that the primary goal is to generate greater revenue for public institutions and schoolchildren. The state's efforts to manage and invest proceeds from local oil production have proven successful, with returns from investments projected to surpass personal income tax collections.

With New Mexico being the second-largest state for oil production in the U.S., the land grant permanent fund currently distributes around $1.2 billion annually to support schools, universities, hospitals, and the state general fund.