December 2015 Column

Hobbs is an oil and gas town.  Although our economy has diversified, the fiscal impact of the oil industry is evident.  Hobbs Municipal Schools is a byproduct of the boom-bust-cycle and the price of oil is  something we continually monitor.  Currently HMS has seen a 135 student count drop in the past two months.  We are still 17 percent or 2,000 students  above enrollment numbers for the past six years. However, we are  likely to see a decline in operational revenue if the student population continues to decline.

The oil industry is also a great partner for capital project revenues.  The decline in production as well as price of a barrel of oil reduces our debt service account. The 2 mill and 4 mill accounts are adjusted as the revenue is received.  A 50 percent drop in the price of oil could mean that some of our repairs and replacements projects may need to be delayed until oil recovers.  None of the projects delayed will be health and life safety concerns.

The debt service account is similar to a mortgage on your house.  We have payments that are due to creditors twice a year.  One payment is principal and the other is principal and interest. The loans are amortized and require HMS to pay specific amounts no matter the economic conditions of the community.  I say all this to caution residents, that your residential taxes may see an increase.

  Oil and gas makes up over 50 percent of our collection for debt service. This is great when the oil market is booming, and this is why we saw very little increase (if any) to residential taxes with the most recent bond election.  Now that the oil industry has seen a decline, those proceeds must be adjusted to make up for the loss in revenue.     Any adjustment will be slight and may not happen at all. I would just like to prepare the taxpaying constituents in case it does materialize.
 What can HMS do to prevent a residential tax increase during this downturn?  Thanks to a fiscally conservative board of education, we have been able to build up our cash balance for such an event.  We can use our operational funds to offset a loss of revenue for a short period of time.  The length of the downturn will impact HMS’ ability to delay a tax increase. We also have a bond that will mature in July 2016 that will help offset our debt service.  Conjoined, our operational cash balance with savings from our 2 and 4 mill accounts, I feel comfortable we will see very little if any tax increase in the next calendar year.  Again, the length of the downturn will determine HMS’ ability to offset any reduction in revenue from the oil and gas industry. 
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