Retail rises as oil and gas continues to slide

James Fenton
jfenton@daily-times.com
Businesses signs as seen on Nov. 18 along East Main Street in Farmington. Even as tax revenue from oil and gas production in the region drops, the retail sector is growing, making up some of the loss.

FARMINGTON — With oilfield operations declining in San Juan County after oil prices tumbled last fall, tax revenue from the region's oil and gas sector has been dropping. But an increase in retail tax revenue is providing one bright spot for local governments, as Farmington's role as a regional retail hub continues to grow.

Although the cities and the county face different challenges, the changes mean Farmington is relying more heavily on retail, while the county is looking at another possible round of budget cuts.

San Juan County is seeing about half the revenue from oil and gas production that it collected last year, according to San Juan County CEO Kim Carpenter.

Oil and gas production brought in $302,461 in October  — $8,419 lower than what the county took in the month before, which represents a little more than a 2.7 percent decrease, Carpenter said. That figure represents a continuing downward trend.

"We're at about half of what we were getting last year," Carpenter said.  "We hate what we've seen since 2009. It's been dismal for the industry. Obviously it's very concerning. We had a little bit of an upbeat year in 2014, but this puts the county in a really tough situation with the steep loss in revenues. We just didn't budget for losses to that degree."

The East Main Street as seen on Nov. 18 in Farmington is a regional retail hub that represents a growing segment of the local economy. That growth is welcomed by officials as revenue from oil and gas production continues to shrink.

And that number is nearly 45.4 percent below the October 2014 figure, he said.

Large oil and gas companies operating in the county — Halliburton, Baker Hughes and ConocoPhillips, among others — laid off local workers this year.

Carpenter said he estimates more than 400 people have lost their oil and gas industry jobs in the last six months. San Juan County government has laid off one employee this year, he said, and is down 50 positions. Those jobs have been frozen or closed due to attrition, he said.

"We're just going to have to hang on for the long haul," Carpenter said. "It's not going to be an overnight change. It's unfortunate, all the people who have been laid off. It hurts and it's felt throughout the entire community."

Land annexations by Farmington and Bloomfield in recent years along with the incorporation of the town of Kirtland this year also have cut into property tax revenue collections for the county, making the budget crunch worse, Carpenter said.

The sale of the Navajo Mine to the Navajo Nation, which removed it from the county's tax rolls, plus steep drops in the environmental landfill and fire excise taxes are adding to the pain, he said.

San Juan County officials will have to go back to the drawing board in January to again make budgeting adjustments, he said.

A potential bright spot, Carpenter said, is a proposed $1 billion power plant project by Colorado-based Western Energy Partners, LLC.

The project, a 750 megawatt natural gas and photovoltaic power plant, would employ 30 full-time employees once it is operational and provide about 800 temporary jobs during construction, according to the company.

Rob Mayes, Farmington's city manager, said that a look at the first four months of fiscal year 2016, which started July 1, creates concerns.

Between July and October, gross receipts tax revenue from the mining, oil and gas sectors added up to approximately $720,000. That's a drop of 29 percent compared to the same time period a year ago — a loss of $295,000, Mayes said.

Retail, the largest of the city's revenue sectors, was another story.

"During the same period of time, retail is 4 percent higher than the same four month period a year ago," Mayes said, which translates to an added $6.5 million in its general fund.

Retail makes up about 38 percent of the city's revenue pie. By contrast, mining, oil and gas now only delivers about 4.5 percent, Mayes said.

"Go back 20 or 30 years and you'd see a different allocation of that pie," he said.

In 2009, at the peak of oil and gas revenue, the sector was 7.2 percent of the total gross receipts tax pie. Retail then was 41 percent of the pie. Health care, service and construction has continued to grow, which Mayes says shows the city is diversifying its economy.

Gross receipts tax revenue makes up about 70 percent of the city's total budget, Mayes said.

Other sectors like construction, accommodations and restaurants, and health care were up while manufacturing, wholesale trade and professional services were down, Mayes said.

But despite sizable gains in retail, the city's overall gross receipts tax numbers are still 5 percent below  2009 numbers, the year before the recession of 2008 hit felt locally, he said.

In fiscal year 2010, overall tax revenue  numbers had dropped by 22 percent from a 2009 high, he said.

"Even in this (time of) depressed mining, oil and gas (revenue), we've seen restaurants and the Dick's (Sporting Goods) come to town, so there are bright spots," Mayes said.

And with cheaper prices at the pump — regular gasoline was as low as $2.07 per gallon in Farmington on Nov. 19, according to GasBuddy.com — most people have more discretionary income to spend at stores, hotels and restaurants.

One of those restaurants is Weck's, a New Mexican chain of breakfast and lunch eateries, which opened the largest of the brand's locations in the state on Farmington's retail-heavy Main Street in May.

Weck's owner and licensee Michael Dennis said he is glad he opened the restaurant in Farmington, although the new enterprise hasn't been issue-free.

Tami Mays, center, serves Antonio Cox, left, and Larrissa Jay on Nov. 18 at Wecks in Farmington. Retail tax revenue has increased somewhat, while oil and gas production tax revenue has dropped precipitously.

Dennis, who also owns and operates a Weck's he opened in Santa Fe in 2012, said that his greatest challenge this year at the new eatery has been training employees.

"We’ve really struggled with training (workers at the restaurant)," he said. "But the last couple weeks we (have) noticed a real difference in the quality of the team. We are beginning to get to a place where we are representing the Weck's brand name at the highest level. I'm proud of it."

Dennis said that operating a new restaurant in Farmington has been a worthy investment, despite a bump or two along the way.

"My personal (return on investment) is that we're profitable. I look at it more broadly than just the monetary," Dennis said. "Retail in general, I see the community and how it's driven by oil and gas. If you're not local to Farmington, you don't know that."

Operating a business during a downturn is a matter of spirituality and perspective, he said.

"I feel that service in general is a very spiritual thing," Dennis said. "Service and spirituality, the two go hand in hand. For me, I think that's what called me as an entrepreneur. It's made me a better business owner and person."

Mayes said the city is a burgeoning retail "hub," drawing people from all over the Four Corners region to Farmington to shop, vacation or do business, sustaining growth in the retail sector. As an example of the high volume of sales possible in town, Mayes said that he had heard that the Walmart on the east side of Farmington does the highest volume of business

Customers enjoy breakfast, Nov. 18, 2015, at Wecks in Farmington.

of any of the 50 Walmart stores in New Mexico.In a city of about 45,000 people that can balloon to more than 300,000 people — many of them from the Navajo Nation and from nearby Four Corners states like Colorado and Utah — on weekends, retail is helping make up for the depressed oil and gas sector.

Continued retail success is comforting but predicting trends is difficult, Mayes said.

"Clearly, I have some concerns about recent layoffs and we clearly are seeing a declining trend in our overall (gross receipts tax)," Mayes said. "The trend has me concerned. But on a positive note, we have seen some success in diversifying the economy that shows that we are not as completely dependent on the mining, oil and gas sector as we have been in the past. The question is whether this is sustainable or not."

James Fenton is the business editor of The Daily Times. He can be reached at 505-564-4621.