In New Mexico, a way out of the boom-bust cycle?

Lea County tries a different formula for rural success.

 

When the last of the big oil companies fled this dusty New Mexico town during a market crash in the mid-1980s, something told lifelong resident Sam Cobb they weren’t coming back. The county of 60,000 people lost nearly 10,000 jobs. Some families simply left their keys dangling in the doors of their foreclosed homes. Among those who stayed, unemployment tripled.

The bust was hardly a surprise: Hobbs had long ridden the steep waves of an energy economy that expands and contracts with commodity prices. But for Cobb and the rest of the community’s leaders, the sheer size of this downturn was eye-opening. Something, he realized, had to change. 

So the city and county started saving. Seeking to capitalize off its reputation as an energy producer, Lea County rebranded itself as “The EnergyPlex,” and started recruiting nuclear, solar and wind energy firms. Without borrowing a dime, the city invested in housing, doubled its police force and pooled resources with five other public and private entities to build a $63.5 million recreation center.

A pump-jack is silhouetted by the sunset on the open plains outside Hobbs, New Mexico. The town, historically subject to the oil and gas industry's booms and busts, has managed to recruit other energy producers, grow small businesses and save tens of millions of dollars to reinvest in the community during economic downturns.
Leah Todd, Solutions Journalism Network

Cobb, now the town’s energetic mayor, is the first to say the community is not yet free of the boom-bust cycle. Oil and gas severance taxes still make up about 50 percent of local tax revenue, and one in five local jobs is in mining. The county certainly felt a squeeze in the latest downturn, losing 1,500 jobs between 2014 and 2015 as oil dropped from $100 per barrel to $50, and the number of rigs in the Permian Basin tanked from 550 to 200.

But Lea County’s strategic and sustained approach seems to be slowly working. Today, the county boasts above-average salaries and — unique for an oil town — low income volatility, at least compared to other communities its size. During the slow recovery after the 2008 recession, which most gravely afflicted rural areas, Lea County was one of only a handful of counties in New Mexico that actually added businesses. The EnergyPlex’s story may offer lessons to other Western communities struggling to claw free from a cyclical energy economy.

Headwaters Economics

Housing as economic development

Housing has always been subsidized in Lea County. Generous allowances from oil companies helped recruit employees to town and spurred growth in single-family homes. When the oil economy collapsed and big companies cut their losses in the 1980s, the housing market crashed, too. Lenders got gun-shy about offering loans for apartments or home construction in a county where the economic outlook was precarious at best.

“You couldn’t even give away a house, hardly,” said Lea County Commissioner Gregg Fulfer, who sold real estate at the time. “And when you did sell it you were actually giving it away.” He recalled selling a house for $46,000 before the boom that went for $10,000 after the bust.

That adversity forced a change in the town’s leaders, Cobb said. Cobb ran for mayor in part on the promise of improving housing in his community.

He’s delivered on that vow. Over the past five years, the town has extended $7 million in incentives to developers building more than 1,500 housing units — affordable and market-rate apartments, even single-family homes — primarily through reimbursing developers for the cost of roads, sidewalks and other infrastructure. Hundreds more units are under construction.

The key, Cobb said, is to look at housing as an investment in the community’s future — not as a government giveaway. The cost of the tax break comes back to the town in property taxes over time, he said, and home-owning families remain tied to the community in ways that transient renters don’t. 

“He did not want this community built around man-camps,” City Manager J.J. Murphy said of Cobb. “He did not want people who, the first time oil dips down, they hook on their trailer and leave town.” 

For communities like Hobbs, a lack of housing can be a hindrance in boom times, too. In the absence of traditional affordable housing, hotels were packed with long-term residents. According to county estimates, the number of housing units in Lea County grew by just 1,500 units between 2000 and 2010, while the population grew by more than 9,000 residents. Inadequate housing was a turn-off for companies that would have otherwise moved to town. 

Families parade through downtown Hobbs, New Mexico, on Halloween. The town, historically subject to the oil and gas industries' booms and busts, has managed to recruit other energy producers, grow the number of small businesses and save tens of millions of dollars to reinvest in the community during economic downturns.
Leah Todd, Solutions Journalism Network

To be sure, many communities offer incentives. And, like Hobbs, other communities invest during boom times. Williston, North Dakota, where population surged 60 percent between 2009-2014 thanks to a years-long oil rush, is building a new high school, expanding its jail and constructing a recreational center. Unlike Lea County, however, much of it is being funded by borrowed money.

For Hobbs, it helps to have a mayor with business acumen. Cobb, who owns a plant that manufactures veggie burgers, refuses to back proposals that don’t make financial sense. It was his idea to save 30 cents on every dollar of revenue, despite the fact that the state only requires municipalities to save 8 percent. It’s fitting, then, that his City Hall corner office is housed in an old bank that went under during the bust of the 1980s.

“When times are good, that’s when you need to plan and invest in diversification,” Cobb said. “We’ve invested heavily in housing during the boom, because if you don’t have housing, even when you have a downturn you can’t go out and recruit non-oil industry businesses.”

Not everyone agrees with Hobbs’ approach. Many economists are skeptical of whether economic incentives pay off in the long run, saying such tax breaks deprive other services — like schools and hospitals — of necessary resources.

“You’re cutting your tax base,” said Mark Partridge, a professor of rural-urban policy at the Ohio State University. “That means that somebody else has to make up for that, or you have cuts in services.” Lea County’s health care system ranks in the bottom half of the state for health care outcomes and determinants, according to a recent state report. Schools, on the other hand, perform above average; according to the state’s report card, 13 of Hobbs’ 18 schools are rated an “A” or “B.” Only one is considered failing.

Economic development is as much about investing in people as it is in businesses, Partridge said, especially in rural places. Cities with high educational attainment tend to do well no matter what the industry composition, he said. His prescription for rural success: Protect the natural environment. Invest in schools. Build from within, including developing small, local businesses.

 

New energy

Energy is Hobbs’ heritage, and the community hopes it also will be its future. The county’s new “EnergyPlex” brand is trying to fuel growth in other kinds of energy production, a phenomenon the economic development world calls “clustering.” Lea County’s ample sun and flat, open space, coupled with decreasing infrastructure costs nationwide, makes renewable energy a good bet. 

Today, four solar power plants operate in Lea County, with four more under construction. Together those operations will produce 288 megawatts — about 19 percent of the state’s solar energy. Wind is growing more slowly, with just one operational plant and another on the way. Lea County’s wind sector will produce about 57 megawatts — 7 percent of the state’s wind energy. 

But economic development officials say the county’s biggest break came when local leaders convinced Urenco USA, a uranium enrichment company that supplies nuclear power to plants worldwide, to build a $4 billion facility in Lea County. Not counting the economic impact of the facility’s massive and ongoing construction, Urenco employs 350 people. The county offered a break on some property taxes for the company. By advocating for Urenco with the Nuclear Regulatory Commission and the New Mexico Environment Department, the city and economic development corporation “substantially sped up the permitting process,” Cobb said.

Lately, momentum has built in Lea County. Service-related jobs — utilities, real estate and health services — have grown steadily since 1990. No business is unwelcome. Locals talk excitedly about the new Home Depot, the new Buffalo Wild Wings, and the third McDonald’s – all signs that corporations think there will be enough sustained activity to make their investment worth it in the long run. Officials are cautiously hopeful that Lea County has hit the economic development sweet spot: a critical mass of industries that will now start to build on itself.

“We used to never be able to say tourism and Hobbs, Lea County, in the same sentence, but we’re finally in that area now where we can say that,” Fulfer said. “We have a casino, we have enough motels. It’s starting to grow on itself now, as long as we can keep our base.”

And by several measures, Lea County is weathering the latest downturn better than the last. The city’s reserves are still up — its savings account has grown from $40 million to $116 million in the past decade, despite the sharp drop in oil prices two years ago. Unemployment, even though it’s above the state average, is nowhere near the bust of the 1980s. 

“Everybody was calling me after the oil bust, asking how bad it was going to affect us and how many people we were going to lay off and what projects are we going to have to cut back,” Fulfer said “I told ‘em, we’re not laying off anybody, and we’re not cutting any projects. In fact, we’re putting into $50 million into new projects.”

Like Lea County, entire states and some countries have squirreled away money to maintain wealth during busts. Since 1990, Norway has directed tax revenue from its state-owned oil industry to a pension fund that’s now worth about $880 billion. Alaska’s Permanent Fund, which gathers at least 25 percent of royalties from the sale of oil and other state-owned mineral resources, is worth about $50 billion. Wyoming’s mineral trust, started in 1975, is now worth roughly $6 billion. New Mexico’s own severance trust fund is worth about $4 billion, and annually disperses about $200 million to the state’s general fund. That hasn’t saved the state from crisis, however: New Mexico’s cash reserves hit zero earlier this year amid slumping oil prices, and the state faced a projected $400 million shortfall. 

Though some parts of Hobbs’ strategy — save during the boom, invest during the bust, use its reputation to attract more energy producers — are potentially exportable, there’s no one right plan for all towns striving for economic sustainability. But the questions Lea County is asking could be instrumental: What market opportunities are untapped? What do existing businesses need? What are our community’s competitive advantages?

“You want to have less volatility. You want to look more like the nation, instead of this wild roller coaster,” Partridge said. To get there, he suggested paying attention to two primary metrics: whether your town is gaining small businesses and whether educational attainment is rising. 

“If you’ve got those two measures, then be patient,” Partridge said. “It’s going to work out.”

This story is part of the "Small towns, big change" project through the Solutions Journalism Network.

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