Put this in the “lessons learned” category.
The Great Recession of 2008 had a devastating impact on New Mexico’s permanent funds, wiping away nearly 30 percent of their value as they plunged from $16.1 billion to $11.68 billion. This, on the heels of a pay-to-play scandal where cronies of Gov. Bill Richardson steered investments from the funds into ventures that ended up costing the state hundreds of millions.
In response to the latter, the State Investment Council was restructured with a broader membership appointed by both governor and Legislature, who joined elected officials such as the state treasurer and land commissioner. This restructuring moved us away from a system in which the state investment officer – then a de facto appointee of the governor – had virtually carte blanche ability to direct investments, sometimes at the behest of politically connected insiders and without regard to return on investment for New Mexico’s taxpayers.
In response to the havoc wreaked by the recession, the restructured council has wisely reworked portfolios, giving up some quick gains in a bull stock market for diversification and more buffers if the market tanks. Why is all this important?
These permanent funds, consisting largely of money from oil and gas royalties and investment returns, generated $968.1 million for public education and state operating expenses this year. SIC spokesman Charles Wollman says the council projects “we’ll cross the $1 billion threshold in payouts in FY 2020.”
After the recession, the council cut the amount invested in public equities from 62 percent in 2010 to 45 percent today. About 25 percent of investments are now in bonds and another 28 percent divided among hard assets like timber, energy, real estate and private equity investments in businesses.
Unfortunately, the funds face political threats as well as those from unpredictable market forces – including fluctuating oil prices that tend to be tied to a global economy. Chief among them will be another move to increase the annual distribution to pay for amorphous “early childhood” programs, reducing future payouts for education and state operations.
Gov. Michelle Lujan Grisham, who favors an unspecified increase in the distribution of the Permanent Fund to address what her spokesman calls “funding gaps in early childhood education,” also wants more SIC investments directed to business and job-creation ventures based in New Mexico.
Some of the initiatives, including an increase in distribution of the Land Grand Permanent Fund for early childhood – now set at 5 percent of the five-year average value of the corpus – would require a constitutional amendment and voter approval. Others, such as changing SIC policy to invest the full 9 percent allowed by current law from the Severance Tax Permanent Fund in New Mexico-based business would not.
The governor’s ideas on directing more money to stimulate economic growth in New Mexico deserve careful and serious consideration with plenty of safeguards. The Journal, like fiscal conservatives in the Legislature, has long opposed increasing the Permanent Fund distribution. It’s just not a wise economic course for the long term.
It’s important they keep in mind how far we’ve come since 2008, with funds rebounding from $11.61 billion to $24 billion. The money they put into education and government operations annually has grown from $712 million to $968 million.
As SIC member Linda Eitzen says, “Things are on a good course and running smoothly. It’s a good story for New Mexico.” Let’s hope the governor and lawmakers don’t rewrite the ending.
This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.