Opinion: Raiding trust funds will only leave state with less for the future
Last updated 2/1/2022 at 5:49pm
While state legislators consider a proposal requiring financial literacy be taught in high schools, it might be a good idea if they took a class themselves in investing wisely.
Just two years ago, lawmakers and Gov. Michelle Lujan Grisham created a state early childhood trust fund to help pay for expanded prekindergarten and other early childhood programs. The fund received a $300 million startup infusion from the state and gets energy-related tax collections in years when total state cash reserves exceed 25% of spending levels.
The strategy was to provide a stable source of funding to support N.M.’s increasing investment in pre-K, home visiting programs for new parents, child care assistance and other early childhood programs.
With hefty tax collections on oil and natural gas production, the early childhood trust fund is projected to grow to more than $2.1 billion by July, reaching nearly $4.3 billion by the end of fiscal 2025. That’s great news — especially given that when created, the hope was the fund would eventually reach $1 billion.
But the explosive growth has created a temptation for some lawmakers who want to spend even more from it, at the expense of tomorrow’s children. Under current state law, $30 million is transferred annually out of the trust fund for programs overseen by the Early Childhood Education and Care Department. That would increase to $40 million for the coming budget year under a legislative proposal that would also allow distributed funds to be spent on child-focused programs run by other agencies.
On the flip side of spending more, Sen. Steve Neville, R-Aztec, wants to invest less. He says the early childhood trust fund is “way overfunded. We need to throttle that back.” We fail to see how a trust fund created just two years ago, that’s dependent in great part on finite energy resources and intended to last in perpetuity, can ever be “overfunded.” The point is to let the corpus increase in value over time while the interest earned is available every year for the endowment.
Or is safeguarding your retirement fund while not blowing your lottery winnings too Economics 101?
Meanwhile, in November voters face a fiscally irresponsible constitutional amendment to take even more from the state’s largest permanent fund — the Land Grant Permanent Fund — for early childhood programs. Apparently $540 million that’s allocated annually, or even more from the $2.1 billion early childhood corpus, isn’t enough. The land grant permanent fund, valued around $25.8 billion, per the state Constitution distributes 5% of its recent average annual value to schools, universities, hospitals and other beneficiaries. This year’s contributions into the fund — fueled by record-high oil and gas income from state lands — exceeded $1.3 billion, or $400 million more than any other year.
The amendment would boost the annual distribution out of the permanent school fund, a component of the broader land grant permanent fund, from 5% to 6.25%. This ignores “the 5% rule” in the 1976 Tax Reform Act that ensures private foundations exist in perpetuity while society benefits.
Raiding the land grant permanent and early childhood trust funds now will leave the state with smaller annual distributions in future years. The real question is why, with literally hundreds of millions already available and not enough staff or infrastructure to deliver additional meaningful programs? Lawmakers should leave the early childhood trust fund alone and grow meaningful programs on its interest; voters should keep Land Grant Permanent Fund distributions as-is.
— Albuquerque Journal