The Truth About New Mexico's "Pit Rule"

Over the past two years, a debate has raged in New Mexico between those who work protect our water and land and some irresponsible oil and gas operators who oppose common sense efforts to make oil and gas exploration safer for everyone. The subject of the debate has been New Mexico's new "Pit Rule," which requires that drilling operations follow several new procedure to ensure that groundwater doesn't become contaminated by the drilling operations.

First, the rule requires that the "mud pits" alongside drilling sites be lined for the first time to prevent contaminants from leeching into the ground. Second, the rule requires that a record be kept of where each pit is located. Third, the rule required that the toxic wastes in the lined pits be removed to a disposal facility when drilling finished. Finally, the rule requires that a "closed loop system" be used when groundwater is withing fifty feet of the service to prevent groundwater contamination.

Since the New Mexico Oil and Gas Conservation Division adopted the rule, opponents have many numerous, loud and baseless claims that the rule has cost jobs and revenue to the state. The claims are wrong and are unsupported. There is no evidence to support such claims. In fact, the truth shows that opponents of the pit rule are dead wrong.

Look this statement from Apache Corporation, a New Mexico producer. They're busier now than ever: " We expect to drill in excess of 200 new wells during 2010 and currently have five rigs running in the Permian Basin. Of the 200-plus wells expected to be drilled, 100 new wells will be drilled in New Mexico, which will represent the most wells drilled by Apache in the state in any year. Also, we’ve identified areas that can take advantage of horizontal well technology. The first of those wells is drilled and in the process of being completed." (http://www.apachecorp.com/explore/Browse_Archives/View_Article.aspx?Article.ItemID=978).

Opponents of the pit rule seem not to understand the fundamental truth of the oil and gas business: production follows opportunity, which is made or broken by the price of the commodity. It is the fall in prices since 2008, not the Pit Rule, that has affected production. I have repeatedly raised this issue in committee and on the floor. Each time I have asked for evidence to support the claims made by the rule's opponents, I have heard nothing but silence.

The funny thing is that there is a lot of evidence to contradict the opponents. Take a look at the Baker-Hughes Rig Count data from 02-08. Note that all three states saw rig counts drop in Dec. '08. Colorado saw a HUGE drop, far worse than NM or WY. New Mexico's pit rule, obviously had nothing to do with CO or WY. It was all about commodity prices. Here is the document (pay special attention to the final two pages):

2009 2-19 Baker Huges Rotary Rig Count Weekly Comparison Thru February 13, 2009

For more recent data, as of June 4, there were 67 rigs drilling in New Mexico; that's up from 50 in Feb. 09, and increase of MORE THAN THIRTY PERCENT. Colorado had 52, which is down more than twenty percent from Feb. 09. Wyoming only had 34 drilling, a huge further decrease from Feb. 09. So, since Feb. 09, only one of the three states has seen an increase in drilling: New Mexico!

So, the data show that New Mexico's production is GROWING IN SPITE OF THE PIT RULE.

Opposition to the pit rule is about politics and Republicans' opposition to common sense environmental protections.

A New Bank of New Mexico - One Step Closer to Reality!

Since the last session of the legislature, I have been working on a plan to create in New Mexico a state-owned bank for New Mexico. Today, that vision got one step closer to reality.

Today, the New Mexico Finance Authority Oversight Committee, on which I serve during the interim (the period between our legislative sessions), added the creation of a state-owned bank for New Mexico to its agenda. We are working hard on a bill and plan to present it to the committee in October.

As you may know, this idea has been incredibly successful in North Dakota, where the Bank of North Dakota has been working with that state's local economy to grow its economy and work with its local businesses for over ninety years (learn more HERE and HERE). The idea is based on the concept that we should keep New Mexico's money in New Mexico for the benefit of our citizens instead of sending our state's funds to California, North Carolina and New York.

By creating a Bank of New Mexico, we will be able to provide an important new resource for the state and critical support to our community banks and credit unions during these tumultuous times. The Bank will be able to do several key things:

1. Work with our New Mexico-based banks and credit unions to expand credit to homeowners and small businesses,
2. Maintain our state's "check book" so we don't have to hire big national banks to do it for us, and
3. Invest in our local economies statewide by leveraging state funds to make available billions of dollars in loans to worthy projects.

The new Bank of New Mexico won't compete with our community banks and credit unions. Instead, it will partner with them to assist the loan-making process and drive credit access further into New Mexico's under-served communities.

The great thing is that New Mexico already has all the building blocks we need to make this vision a reality. We have a well-run and stable Finance Authority that is already doing some of this work, though on a much smaller scale. The Finance Authority will have a surplus in excess of $100 million in the next two years that can be used to capitalize the new bank. And, we have a terrific and competent staff that can manage this new bank.

Pleas follow this blog to keep up with the project.

Earlier this week I listened to a story on This American Life about how a single Chicago-based hedge fund may have very likely been the proximate cause of the financial meltdown that nearly destroyed the global economy. That company is called Magnetar, and it is a scandal that you’ve probably never heard of it.

Magnetar played a critical role in keeping alive the market for some of the riskiest investments in 2006 and 2007. By doing so, Magnetar drove demand for riskier and riskier investments throughout the financial industry and created a market for the risky mortgage-backed securities that were the foundation for the collapse of the housing market. Here’s how they did it:

One of the biggest, if not the biggest, causes of the financial collapse in 2008 was the combined effect of two interlocking securities instruments called Credit Default Swaps (CDSs) and Collateralized Debt Obligations (CDOs). CDOs are a type of asset-back security, similar to a bond, that pays investors from the proceeds of an underlying bundle of investments. In some cases, CDOs are issued based on mortgage-backed securities. If the underlying mortgages default, the CDOs can’t pay the investors, and the CDOs collapse in stages. Failed mortgages led to a cascading series of failure of CDOs throughout the financial industry and eventually to the failure of the financial system itself.

CDSs come into play because they are like insurance. If you make a large investment, you can buy a CDS to protect, or insure, you investment in case the investment fails. You can also, unbelievably, buy a CDS on an investment even if you’re not the investor. This is exactly like taking out a life insurance policy in a stranger. In other words, you can buy a CDS for a small amount on a bet that a large instrument will fail. If it does indeed fail, you get paid the full amount of the investment.

Magnetar’s scheme was to buy the riskiest portions of the CDOs, encourage the CDO manager to place riskier and riskier securities into the CDOs (making the CDO’s failure far more likely), then bet against the success of the CDO by purchasing CDSs that paid if the CDO failed. For example, Magnetar would spend $10 million on the risky portion of the CDO, would make the CDO virtually certain to fail, would buy a CDS that pays when the CDO fails, then collect $100 million or more when the CDO fails. It makes, by doing this $90 million on a $10 million “investment.”

To make matters worse, in 2005 the CDO market was starting to dry up. Money managers and investors were starting to realize that mortgage-backed securities were getting too risky, and there was a dwinding appetite for CDOs based on them. Magnetar, however, realized that it could make a killing if the CDO market stayed alive and therefore propped up the CDO market by strategically buying the riskiest portion of the CDOs. This not only propped up the CDO market, it fueled it into record growth. This meant that a housing market that would have likely cooled off without a bubble actually sped up and grew. Along the way tens of thousands of Americans got mortgages they never should have gotten in order to supply the demand for mortgage-backed securities. When the housing bubble burst and the CDOs failed, Magnetar made billions.

The final outrage is that much of the Bush Bail Out Money went to stabilize institutions who made bad decisions in issuing CDSs. Undoubtedly some (or a lot) of Magnetar’s huge profits came from the US Government, via AIG and other financial firms.

In the final analysis, Magnetar seems to have created a scheme for huge profits based on the misfortunes of tens of thousands of Americans and the generosity of the American Taxpayer. You and I paid taxes so that Magnetar and other firms could get paid on bets that they new were sure to pay off because they had gamed the system. This is outrageous.

Please take a minute to watch this video, made by the good folks at This American Life. It sums up the story in about two minutes. CLICK HERE.

Also, please visit this page at Pro Publica CLICK HERE. They are the team of reporters who have broken the story and who have put this all together.

New Mexico Legislature Concludes its Special Session - We Have A Budget

Yesterday the New Mexico Legislature concluded the Special Session called by the Governor for the purpose of passing a budget for the new fiscal year. It was a terribly grueling process and session. I am copying below a version of the email I sent to my email distribution list yesterday that sums up what we did in the session:

Dear Friends,

I write to update you on what occurred during the recently concluded special session of the New Mexico Legislature. First, and most importantly, I am very pleased to tell you that the legislature passed a balanced budget. It was a very difficult session, but the work is complete, and I would like to share with you some of the details of the new budget.

Regarding the state’s expenditures, the new budget continues the process of cutting waste and unnecessary spending that began at this time last year. With the passage of the new budget, the legislature has reduced state spending by 12% (more than $700 million) from the spending level of just one year ago. We have cut across the board, but we have done so carefully to ensure that critical education, health and human spending has been maintained. With specific regard to education, I am very proud that in spite of the tremendous challenges facing the budget, the House passed a budget package that actually increased classroom funding by $1.7 million. This was critical to my support of the budget because education is so important to the families of our community.

Unfortunately, the Senate failed to act on the full budget package. Because of that inaction, less than the full budget package passed the legislature, and education will see a cut of approximately 1.2%. I am terribly disappointed that education will see a cut. It was not the will of the House, but the Senate simply would not agree to fully fund education.

In spite of the cuts, the legislature found it necessary to increase revenues in order to balance the budget. I voted for a limited and responsible tax package, but I did so reluctantly. I voted for the package in the firm belief that it was the only way to avoid debilitating cuts to education and other critical spending on health care. On the positive side, for the first time in memory the legislature added major progressive elements to our tax code. The inclusion of new progressivity in the tax code has been a major goal of my legislative service, and I am glad to have made significant progress on this front. The tax package includes six elements:

· First, the package includes changes to the state compensating tax, which will begin to level the playing field between New Mexico companies and out of state corporations.

· Second, the package removes the double-deduction for state income tax. This change, referred to as the PIT add-back, means New Mexico joins forty other states that implement this sound tax policy.

· Third, the package increases by 20% the low-income comprehensive tax rebate to reduce and eliminate the impact of the tax changes on low income earners.

· Fourth, the package increases the tax on a pack of cigarettes by $.75 and earmarks a third of that for education.

· Fifth, the package includes a 1/8% increase in the gross receipts tax.

· Sixth, the package includes a provision that ends the exemption food has from locally-imposed gross receipts taxes. This element also ends the outdated tax policy that has sent to city and county governments hundreds of millions of dollars that could have been better spent on important state priorities like education.

Neither the budget nor the tax package is perfect, but we made tremendous progress in making the package vastly more progressive than when the negotiations started. We also provided truly progressive solutions in both the budget and tax package.

During the regular session of the legislature that ended two weeks ago, several important initiatives passed. First, I sponsored in the House the Natural Heritage Conservation Act, which for the first time will allow the state to obtain federal funds for conservation and restoration projects statewide. I also sponsored in the House the legislation that has ended “double dipping,” the practice that used to allow state workers to retire then return to state employment with both a salary and their retirement benefits simultaneously. Both of these measures passed and went to the Governor’s office for action.

I also introduced a bill that would have moved as much as $5 billion of New Mexico’s money from large national banks into community banks and credit unions statewide. The bill, House Bill 66, received national attention and passed the House unanimously but failed to receive a vote on the Senate floor in the final hours of the session. You can read about the bill by clicking HERE. I was deeply disappointed that this bill did not pass, but I will certainly reintroduce it in future sessions if I am reelected to the House. Two other bills I worked on during the session addressed serious environmental problems in New Mexico. I carried bills that would have allowed the state to recover damages for injuries to aquifers and other types of groundwater from industrial pollution and that would have allowed the state to deny permits to “bad actors” that repeatedly violate the terms of their air quality permits. The “bad actor” bill, House Bill 276, was only one vote short of passage in the House. For a complete list of the other bills I carried in the session, including the State Ethics Commission Act and legislation designed to end pay-to-play, please visit the legislature’s website at www.NMLegis.gov.

Finally, I want to thank you for the honor and privilege of serving in the New Mexico House. I am so proud to represent Santa Fe in the House and hope that my service has lived up to the expectations of my constituents and community. Thank you for your time reading this message. Please do not hesitate to contact me if you have any questions or if I may be of service to you.

Sincerely,

Brian Egolf

New Mexico Representative, District 47

Progress in Moving New Mexico's Money!

My proposal to move more of New Mexico's money to community banks took a big step on Thursday. The House Business and Industry Committee passed it unanimously, and the bill now goes to the House Appropriations and Finance Committee.

I am greatly encouraged by the bipartisan support of this bill and am optimistic that it will keep up its momentum.

Effort to Move New Mexico's Money to Local Banks Goes National!

This week I introduced a bill, House Bill 66, that would start the process of moving New Mexico's $1.4 billion main account (it's like our state's checking account) from Bank of America to community banks and credit unions around the state.

So far I've gotten great responses, and today the Huffington Post picked up the story. You can read it HERE.

If we succeed in moving our money, we will be able to make a HUGE investment in our state and in the community banks and credit unions that do so much for regular folks statewide. This investment by the state will greatly expand the access to credit that so many need and will also keep New Mexico's money in New Mexico, where it belongs.

Yuo can follow the progress of the bill HERE.

The White Peak Fight Progresses

Photo copyright ABQ Journal/EDDIE MOORE

Yesterday, the regular session of the New Mexico Legislature convened. Before the session started, there was a rally of folks from the White Peak area against the Land Commissioner's decision to give away prime hunting land in exchange for less desirable land. The following article describes the rally and the progress on the issue.



White Peak Swaps Protested
Dozens Rally in the Snow Against Land Commissioner Pat Lyons, Policies
By Phil Parker
Journal Staff Writer


State Rep. Brian Egolf told a crowd of protesters at the Roundhouse on Tuesday that he’ll introduce legislation to prevent trades like the controversial White Peak land exchanges planned by the State Land Office.

“That’s the only way I see to get away from precooked, back-room deals,” Egolf, D-Santa Fe, said.

Egolf addressed a camouflage clad throng of dozens of protesters who gathered in the snow to decry the White Peak trades as bad for hunters, with signs that read: “You trade state land for junk land” and “Stop giving away our public lands.” Hunters maintain the Land Office is giving up prime elk hunting territory for less desirable parcels.

State trust lands are managed by the Land Office, often with grazing or drilling leases, to generate money for beneficiaries including schools and prisons.

As legislators took turns firing up the crowd, State Land Commissioner Patrick Lyons, who says the trades of land north of Ocate are needed to solve trespassing, poaching and access disputes, was referenced repeatedly. One protestor held a sign with a crown on it that read: “Lyons is not a King.”

“This is turning into a political free-for-all,” Land Office spokeswoman Kristin Haase said later. “My boss is the only Republican in town, and the Democrats are taking aim. It’s so transparent. It’s political.” Haase said that by consolidating state trust land, the exchanges would allow hunters more access in an area that is now a checkerboard jumble of state and private property.

‘A sham’
Under Egolf’s bill, state trust land would only be disposed of through an open auction after weeks of advertising. Deals agreed upon ahead of time between the Land Office and private property owners would not be allowed before the land is put up for bid.

Egolf called the current bidding process, where the Land Office reached deals before the state’s land parcels were put up for bid, “a sham.” The Land Office did advertise that the White Peak trust land was available, but no one besides the four ranchers the office had negotiated with made offers.

The Land Office wants to trade about 11,000 acres of state trust land around White Peak — plus 40 acres in Albuquerque’s Mesa del Sol area and 3,600 acres just south of Española — for about 9,660 acres from the ranchers.

Egolf also said Tuesday, the first day of the legislative session, that he believes the New Mexico Attorney General’s Office is moving toward challenging the first of the four White Peak trades, between the Land Office and rancher David Stanley, who closed with the Land Office earlier this month. The three other swaps are moving forward but haven’t been completed.

Egolf said “it looks like” the Attorney General’s Office “may be close” to contesting the Stanley deal in court. Egolf said no one with the AG has directly told him that, but he’s reached the conclusion after seeing the office ramp up its review of the trade.

Attorney general spokesman Phil Sisneros said the AG continues to review the deal and “all things are on the table, in terms of our review and intent.” He said Attorney General Gary King “is very much aware of the problems that have been voiced by folks against the White Peak deals going on. He’s also concerned about the transparency in the negotiations, or lack of that.”

With the Stanley deal done, the next trade near completion is with UU Bar Express ranch, which is trading about 3,610 acres in White Peak to the Land Office for 3,431 acres of state trust land. Officials at the Land Office had previously said the deal might close Tuesday, but it was postponed because the Land Office is waiting for feedback from the AG and because title work has yet to be nailed down, according to Bob Stranahan, the Land Office’s chief legal counsel.

Name-calling
At the Roundhouse rally, Ralph Arellanes, a director with the League of United Latin American Citizens, said he was at a briefing held two weeks ago by Lyons, where a hunter from Ocate was loudly questioning the trade. Lyons said, “We don’t need any wiseasses,” and asked that police be called.

“Are we going to let him call us wiseasses?” Arellanes asked the protesters, who replied with a roar. “He thinks the power of money is stronger than the power of people!”

Former Land Commissioner Ray Powell, who is running to regain that post this year, said when he was land commissioner, “I didn’t sell one inch of state trust land.” When issues arose between hunters and private ranchers at White Peak, Powell said, his office would bring them together and mediate.

Powell said that over his 10-year tenure as commissioner he was approached by numerous parties interested in buying or trading for the state trust land in White Peak. He always said no, he said, because White Peak “is one of the few places in the West where you don’t have to be rich to hunt.”

The Land Office’s Haase responded later that Powell was “the commissioner of inactivity.”

“Revenues during his 10-year administration average $160 million per year. Revenues during Pat Lyons’s tenure average $375 million. It’s clear that Pat Lyons is the visionary and the more accomplished land commissioner.”
The Associated Press contributed to this report.