Farmington construction, health care sectors up

James Fenton
Kevin Nelson, front, of DKD Electric, and Nathan Boyles of Rob Boyles Co., work on the fourth floor of San Juan Regional Medical Center on Feb. 10 in Farmington.

FARMINGTON — While the area's economy remains hamstrung by a drop in oil prices that started more than a year ago, two sectors — construction and health care — are offering some relief, officials say.

Six months into the current fiscal year, City Manager Rob Mayes said gross receipts tax, or GRT, revenue from the construction sector was up 13 percent from fiscal year 2015, a $230,000 increase.

On average, the state, which collects the tax money and redistributes it, takes 60 days to send GRT dollars back to municipalities, so those numbers reflect the latest distribution dollars, which is the period from May to November. Of the 7.6 percent the city charges, it only gets back 2.6 percent. The other 5 percent is divided by San Juan County and the state, Mayes said.

The city also saw a jump in tax revenue from the health care sector.

In a close second, GRT dollars rose 11 percent in the same period, or an additional $249,000.

By contrast, GRT distribution from the mining, oil and gas sector is down 26 percent. That's $483,000 fewer dollars from that source that the city has to use than the previous year, Mayes said.

"Health care and construction are positive numbers," Mayes said. "Because we anticipated the overall decline for about 3 percent overall, we're right on budget. We're down a million dollars, but we planned for that."

Gwen Jim of DKD Electric works on the fourth floor of San Juan Regional Medical Center on Feb. 10 in Farmington.

Four Corners Economic Development CEO Ray Hagerman said that more than $1 billion worth of retrofitting work at two coal-fired power plants 18 miles west of Farmington are underway and will require additional workers in the coming year or so. Those projects, which are expected to add construction and construction-related jobs, are to be completed by 2018.

Two of the four units at Public Service Company of New Mexico's San Juan Generating Station in Waterflow will receive selective non-catalytic reduction pollution controls, or SNCR, technology, which reduces nitrogen oxide emissions.

Arizona Public Service Company's Four Corners Power Plant in Fruitland shut down its three older generating units at the end of 2013. Those units are expected to be demolished and removed from the plant next year. The coal-fired power plant will have pollution controls — selective catalytic reduction technology, called SCRs — added to the plant's two remaining units.

Larry Smith, director of facilities at San Juan Regional Medical Center, left, Pat Farrell of B & M Cillessen Construction Co., center, and Doug Frary, vice president of support services at SJRMC, ride in a construction elevator temporarily affixed to the exterior of the hospital on Feb. 10 in Farmington.

Coal-fired power plants represent the largest industrial sources of carbon dioxide, a potent greenhouse gas, and construction of the multi-year retrofitting projects will bring the plants into compliance with federal haze rules.

While Hagerman said the jobs don't begin to approach the number lost locally in the oil and gas industry, they represent one positive in an otherwise uncertain economic landscape.

"There's enough work possible in our community over the next three to four, or, possibly, five to six years," Hagerman said. "(The work) helps soften the blow (of the layoffs of oil and gas workers in the San Juan Basin)."

And Hagerman said that, even though the jobs are considered temporary, the projects are staggered, extending the positive impact..

Mayes said the city was hit hard economically in 2009 when natural gas prices on the commodities market tumbled.

"It's fair to say that we're better prepared today than we were in 2009," he said.

One of the largest projects in the city is the $5.5 million multi-year renovation project underway at San Juan Regional Medical Center and the $73 million construction of Farmington High School, which is scheduled for completion by the summer of 2018.

Funded with GRT dollars, renovations at the hospital, which was built in 1976, include phased updates on two of its four floors to bring the entire complex up-to-date. The work, which includes new rooms with open-air balconies and a patient-friendly redesign for hallways and nurse stations, is expected to be completed by late summer. About $2.5 million in renovations to the emergency department will follow.

San Juan County faces similar challenges. County Executive Officer Kim Carpenter said revenue is down, overall.

January numbers, which represent revenue collected in November, were 3.4 percent down, overall, Carpenter said.

"Everything across the board is down," Carpenter said. "We are having to make a significant budget adjustment ... because of the percentages we're seeing."

In July 2015, the county projected revenue dollars at about $3.3 million and saw $3.6 million instead, Carpenter said.

Larry Smith, director of facilities at San Juan Regional Medical Center, on Feb. 10 shows one of the patient rooms built in 2006 at the hospital in Farmington.

Since then, the numbers have been declining, a trend that Carpenter said would mean tougher choices lie ahead.

"We're down 50 positions through attrition and one layoff in six years," Carpenter said. "We're just doing more with less."

He said that careful budgeting has been essential to staying in the black.

The one good thing is that our particular county, we're much more conservative with our budget strategies than most in the state that way over-shot their income levels," he said. "We're relatively close, but we're still going to make a budget adjustment."

San Juan County, which is required by state law to keep at least 90 days of payroll on hand, has reserves of about $30 million, just in case, he said.

Carpenter said the county's ability to provide services and keep employees on the job is a result of what he called "priority-based" budgeting, which he said is a "scientific-based," multi-agency review process the county began adopting two years ago.

Now Carpenter said he gets a lot of attention from other counties around New Mexico that are in fiscal jeopardy, looking for help with budgeting strategies.

Lee County — it includes part of the Permian Basin in southeastern New Mexico and had over $50 million cut from its annual budget — approached Carpenter for help, he said. The county also is located in an oil and gas-dependent area.

But San Juan County is looking at rougher patches along the road ahead.

Other events have hit the county, including the city of Bloomfield's annexation of 6,775 acres of land in 2014, more than doubling its size and taking gas plants in that area off the county's tax rolls. The town of Kirtland, which was previously county land, incorporated last year, which removed more tax revenue from county coffers.

Carpenter and Mayes cited fiscal discipline as the key to ensuring that the city and county keep services operating.

Mayes said that in downturns, people expect more from their cities and counties, as they rely on libraries, hospitals, public transportation, parks and other services that require millions a year to operate and maintain.

"When money is down, expectations and needs go up," Mayes said. "It's not easy. It's not like the private sector. If you have to lay off all the employees that run the (drilling) rig, the (oil and gas) company parks the rig in the yard. We can't park it in the yard. We've got to continue to keep it running."

The east tower of San Juan Regional Medical Center, completed in 2006, as seen on Feb. 10 in Farmington.

One upside of the dropping price of oil is that is has resulted in lower prices at the gas pump.

Mayes said the city is saving $367,000 on its fleet vehicles' fuel costs. This year's fiscal year budget for fuel is $890,000, down from $1.25 million budgeted the previous year, a savings of 29 percent.

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