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FARMINGTON — An uptick in the oil and gas industry has city officials optimistic as they prepare a budget for the upcoming fiscal year.

City councilors received the preliminary budget presentation during a meeting this morning. The public can hear the presentation at 6 p.m. Wednesday at the Farmington Public Library, 2101 Farmington Ave.

While City Manger Rob Mayes is optimistic about the upcoming fiscal year, he said the state's upcoming special legislative session could create a catastrophic situation or bring huge benefits to the city's budget.

One concern is the possible repeal of so-called "hold harmless" payments, which are distributed to local governments in lieu of tax revenue previously received from food and medicine sales, from the state, which could result in a $5.3 million loss of revenue to the city. Those payments are currently scheduled to be phased out by 2029. Mayes said the payments could be replaced by a food tax. In addition, the state may also implement a tax on Internet sales, which also would benefit the city.

The budget presentation compares current trends to fiscal year 2009, which Mayes described as a high point in the city's financial history. In 2009, the city received nearly $55 million in revenue from the gross receipts tax. By contrast, the city has received approximately $44.1 million in gross receipts tax revenue in the last 12 months, according to New Mexico Taxation and Revenue Department data. Since this fiscal year began in July, the city has received about $31.1 million in gross receipts tax revenue. Gross receipts taxes are funneled into the city's general fund, which covers the costs of such departments as streets, parks and wastewater treatment.

"We're not trying to recover to the 2009 (level)," Mayes said. "No one's predicting a boom."

City officials are predicting gross receipts tax revenues will increase by 4.5 percent over the next year. Mayes said there are contingencies in place in case that predicted increase does not occur.

Going into the budget process for fiscal year 2018, the city faced a $6 million difference between projected general fund expenses and revenue, Mayes said. The projected revenue increase, along with $2.4 million in spending cuts and $2.4 million in cash reserves, will be used to address the deficit. The spending cuts will be a continuation of actions undertaken last year, including leaving several vacant positions open.

If the economy does improve, Mayes said the city may not need to implement drastic spending cuts. It also might be able to avoid drawing from its cash reserves, he said.

Mayes said there are several signs indicating potential economic growth in the oil and gas sector.

The sale of ConocoPhillips assets to the Hilcorp Energy Company was highlighted as one of the signs that the rig count may increase in the San Juan Basin. At one point last year, there were no rigs operating in the basin, but now there are four.

"Every rig that goes out is 100 jobs," Mayes said.

Councilor Gayla McCulloch, who owns Drake's Well Service, said her business has employed 12 new people this year.

Councilor Linda Rodgers, who is the chief financial officer at PESCO, said the Farmington-based manufacturer that produces equipment for the oil and gas industry has hired 70 people in the last few months and will likely hire more people in the coming months. Rodgers said the majority of the equipment being produced is being shipped out of the basin.

"We can't find people fast enough," she said.

Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652.

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