Permanent funds not meant for 'rainy day' raids

A bullish stock market and improved oil revenues boosted New Mexico’s largest permanent funds by $2.1 billion last fiscal year, meaning an extra $61 million will go into state coffers this fiscal year, which began July 1.

And like a kid in a candy story waiting for his/her allowance, there is a faction of New Mexicans already planning how to spend it. That’s understandable.

But what’s worrisome are the community activists and legislators who will undoubtedly start lobbying early and often to spend more of the $22.3 billion in the Land Grant Permanent Fund and the Severance Tax Permanent Fund to meet what they label “critical” needs throughout the state. They have for years. But history, and this impressive increase in revenues, show exactly why such temptation needs to be overcome.

Again.

Both of these multibillion-dollar funds are called “permanent” funds for a reason: They are sovereign wealth funds established to provide New Mexico with a meaningful income stream when oil and gas revenues dwindle — either as those finite resources are tapped out or as green energy takes their place. They get their income from leases, royalties and taxes on oil and gas production in New Mexico, and from other activities on state lands.

The State Investment Council also invests that money in stocks, bonds and other financial instruments to grow the funds.

At the end of fiscal 2016, the Land Grant Permanent Fund was $16.27 billion, the Severance Tax Permanent Fund stood at $4.91 billion.

And every year, the land grant fund pays out 5 percent of its average value over the last five years, and the severance tax fund 4.7 percent, into the state’s general fund to fuel around 15 percent of government, including public schools, universities, specialty schools and other state institutions.

The SIC and Senate Finance Committee Chair John Arthur Smith, D-Deming, have pointed out the funds are actually endowment funds whose corpuses must be protected, and going above the current distribution rates isn’t prudent — in fact other states and universities with such funds keep the distribution rates at 5 percent or under.

New Mexico doesn’t have a strong track record of protecting its permanent funds. The state diverts 95 percent of severance taxes before it even hits the permanent fund to pay off bonds, the Tobacco Settlement Fund is a perennial target for general fund concerns that have nothing to do with smoking’s impact (like the lottery scholarship), and the Water Trust Fund has not had new revenue since 2008 but spends $4 million a year on infrastructure and faces certain depletion.

Should N.M.’s permanent funds go bust, it’s estimated each taxpayer would have to pay about $1,100 more annually to keep things running.

Yet despite the importance of protecting these funds in perpetuity, there is constant pressure to consider them “rainy day” funds to be tapped “temporarily” for “critical” needs — particularly vaguely defined early-childhood education programs with no measurable return on investment.

Fortunately for taxpayers, those raids have been largely unsuccessful.

There’s no question New Mexico’s needs are great. And the temptation at the candy counter can seem overwhelming when pockets are full.

But our leaders should recognize the folly of focusing on a sweet treat now, and realize the benefit of protecting the corpus of our permanent funds so there’s long-term sustenance for the state.

— Albuquerque Journal