SANTA FE, N.M. (AP) — Record-breaking oil production in New Mexico is likely to provide state government with a new multibillion-dollar surplus during the upcoming budget year, economists for the state announced Wednesday.

Annual state general fund income would increase to $13 billion for the fiscal year that runs from July 2024 to June 2025 — a surplus of $3.5 billion, or 36%, over current annual general fund spending obligations, according to the forecast from lead economists at four state agencies including the Legislature’s budget and accountability office.

The estimates were presented to a panel of leading legislators Wednesday and set the stage for budget negotiations when the Legislature meets in January 2024, amid public concerns about crime, health care and the quality of public education in a state with high rates of childhood poverty and low workforce participation.

Annual oil production in New Mexico has more than doubled over the past five years, as the state became the No. 2 producer behind Texas. The energy industry delivered record-breaking income to the state over the past year through severance taxes and federal royalty payments, while the oil sector also bolstered government income linked to taxes on sales, corporate income and personal income.

“We are living in unprecedented and historical times in the state of New Mexico,” said Wayne Propst, secretary of the state Finance and Administration Department, announcing state income projections.

Money is piling up in state accounts. Uncommitted general fund balances surpassed $4.3 billion on July 1, equal to roughly 50% of annual state spending commitments.

Still, several legislators sounded a note of caution on new spending commitments — and whether they can be sustained if energy markets and production falter.

“My concern is we need to be really careful on how we’re spending it,” said state Democratic state Rep. Harry Garcia of Grants. “If we keep on doing this and that money goes away again, we’re going to be in deep problems. It happened in 2016 and how quickly we forgot.”

Surging oil production has allowed New Mexico in recent years to bolster public salaries, expand access to no-pay childcare, and offer tuition-free college to its residents —- while also setting aside billions of dollars in a variety of “rainy-day” emergency accounts and investment trusts.

The trusts are designed to sustain public programs and ease future dependence on the fossil fuel industry, as oil reserves are depleted or demands decline or both. A state trust for early childhood education, initiated in 2020, already has a balance of $5.5 billion.

Legislation adopted this year will divert excess income from petroleum to the state’s severance tax permanent fund, to generate investment income and underwrite construction projects. New deposits of between $2.2 and $3.1 billion are expected by 2028.

“We’re building our bridge from peak oil to investment income,” Taxation and Revenue Secretary Stephanie Schardin-Clarke said.

Democratic state Sen. George Muñoz of Gallup, chairman of a lead budget-writing committee, said the state’s giant budget surpluses won’t last. He lauded efforts to generate more income through savings and investments.

“We have an opportunity ... to move the state toward less reliance on oil and gas,” he said in a statement.

Legislators have responded to budget surpluses in recent years by approving tax relief and direct rebates — including payments in June of $500 to individuals, or $1,000 per household, and a gradual reduction in taxes on sales and business services.

Democratic Gov. Michelle Lujan Grisham in April signed off on refundable credits of up to $600 per child, a tax break for health care providers and new incentives for the film industry. But she vetoed an array of tax cuts and credits to safeguard state finances.

The governor said Wednesday in a statement that a robust state income forecast “proves that what we are doing in New Mexico’s economy is working.” Lujan Grisham described her support for “meaningful and long-lasting investments” without offering further details about budget priorities for next year.