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State’s permanent funds hot topic for governor hopefuls

Copyright © 2018 Albuquerque Journal

SANTA FE – A debate moderator scolded Jeff Apodaca last week when the gubernatorial candidate pulled a pocket-sized state Constitution out of his jacket.

Props weren’t allowed.

Jeff Apodaca

But it was an apt metaphor for Apodaca’s approach to New Mexico’s $23 billion in permanent funds, the use of which is the topic of a perennial debate inside the Roundhouse.

Apodaca this year is going beyond what his Democratic rivals are proposing – so much so that he faces questions about whether his ideas would conflict with the rules that restrict use of the funds.

“There’s been a great deal of misinformation in this campaign about what you can and can’t do with that Land Grant Permanent Fund,” state Sen. Joseph Cervantes, a Las Cruces lawyer, said in the debate, shortly before Apodaca reached for his Constitution.

Apodaca, in turn, says he’s the only candidate willing to “think outside the box” and find creative solutions to improve the economy. And his ideas are perfectly legal, he said.

Joseph Cervantes

In any case, there is at least some agreement among the Democratic candidates about changing how the state’s two main permanent funds, which collect royalties from oil and gas production, are used.

All three Democratic candidates in the race – Apodaca, Cervantes and U.S. Rep. Michelle Lujan Grisham – say they would support additional distributions out of New Mexico’s permanent funds to expand early childhood education programs. Similar proposals have passed the state House but repeatedly run aground in the Senate.

The general idea is that New Mexico would withdraw, say, 6 percent out of the Land Grant Permanent Fund every year rather than 5 percent, as it does now. The measure would require voter approval to amend the state Constitution, and congressional approval might also be necessary.

But Apodaca also wants to change how the permanent funds themselves are invested, not just how much is disbursed into the state budget each year.

Michelle Lujan Grisham

Apodaca is proposing to use over $1 billion from the funds – about 5 percent – to invest in local companies by providing low-interest loans and other economic help, even if the investments don’t generate market-rate returns.

“We’re going to make a little less on our return,” he said in a recent interview, “but we’ll be creating jobs – jobs we desperately need.”

The state already has a similar program for one of its permanent funds, the smaller Severance Tax Permanent Fund.

But the larger of the two main funds – the Land Grant Permanent Fund – is managed with the state’s “prudent investor” law in mind.

That means the State Investment Council balances risk and reward as it tries to generate the most revenue for the beneficiaries of the fund, such as public schools.

The goal is to manage the permanent fund like an endowment – leaving the principal alone but investing the money and using the income generated by those investments to pay for public education and other services in the state. The Land Grant Permanent Fund alone will distribute about $750 million next year, about 85 percent of which goes to public education.

The fund might generate less income, of course, if some of the investments were targeted for local companies that don’t generate the returns found outside New Mexico.

Apodaca says that’s just fine – because investing in local businesses would help create jobs and boost the economy overall. He would push for that as a member of the State Investment Council, which is chaired by the governor.

“I will make sure that we have a board that will invest back into you,” he told viewers of the television debate, “not just outside our state of New Mexico.”

Cervantes, in turn, says that for about 25 years, the state has been doing what Apodaca has suggested. It’s just limited by law to the severance tax fund, not the land grant fund.

“I think it’s disrespectful to the Legislature,” Cervantes said, for Apodaca to suggest he’s the first one to come up with the idea. “It’d be foolish for New Mexicans to think we ignored or don’t invest that money or don’t manage it well.”

Lujan Grisham and Cervantes have their own ideas for the permanent funds. They both support increasing the annual distributions – at least the general concept – to pay for early childhood programs.

Lujan Grisham’s campaign says she would work with the Legislature to determine the right amount to divert from the Land Grant Permanent Fund, while keeping in mind the need to protect the fund’s long-term financial health.

But she says she would also work to find other funding that could be applied to expand early childhood programs, such as pre-kindergarten, which helps prepare children for school.

“Early childhood education is the key,” Lujan Grisham said in the debate, “and it’s the cornerstone to having the educational outcomes that every New Mexico family deserves.”

Cervantes said he supports additional distributions from the permanent fund to support public education, including early childhood education. But he said the state should proceed carefully because of a class-action lawsuit that alleges New Mexico is under-funding education – the result of which could be a court ruling requiring the state to spend more.

Apodaca said he, too, supports the additional distributions.

Republicans in the Legislature – and some Democrats – remain opposed.

Opponents say that withdrawing more money now would have long-term financial consequences. It would slow the growth of the Land Grant Permanent Fund and eventually mean less funding for schools and other beneficiaries than if the fund were left alone at a lower distribution rate.

About 5 percent of the land grant fund is distributed annually now to help New Mexico pay for public schools and other institutions. Under then-Gov. Bill Richardson, voters approved pushing the annual distributions to as high as 5.8 percent, before they were gradually phased back down to the 5 percent used today.

The winner of the Democratic nomination for governor in next Tuesday’s primary election will face Republican Steve Pearce in the Nov. 6 general election. Early, in-person voting continues through Saturday. For early voting locations, go to nmvote.org.

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