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Will governor’s support tip permanent fund debate?

Copyright © 2019 Albuquerque Journal

SANTA FE – Past efforts to tap New Mexico’s largest permanent fund for early childhood programs have ended up stuck in political quicksand in the state Senate.

But backers say this could be the year they finally find solid footing, as the election of Gov. Michelle Lujan Grisham and an expanded Democratic majority in the Legislature have given more momentum to the cause.

“We’re closer than ever,” Rep. Javier Martínez, D-Albuquerque, one of the proposal’s sponsors, said during a rally this week that drew more than 300 children and parents to the state Capitol.

The proposed constitutional amendment, House Joint Resolution 1, has cleared one House committee and could hit the House floor as soon as next week.

House Speaker Brian Egolf, D-Santa Fe, said it’s “very likely” the proposal will pass the House this year – as it has the past two years – and move over to the Senate, where its fate is uncertain.

He also said having a governor who’s engaged on the issue and has voiced support for taking a “responsible pinch” from the Land Grant Permanent Fund could make a difference.

“With Gov. Lujan Grisham, I think we’ll get to see if she can change some minds,” Egolf told reporters.

And the Democratic governor, who took office last month, has indicated she’s ready to rumble.

“I have every intention of having the fight of my life on this issue,” Lujan Grisham told New Mexico In Depth.

But moderate Senate Democrats, who have joined with Republicans in past legislative sessions to thwart similar proposals, have suggested their thinking hasn’t changed.

Sen. John Arthur Smith, D-Deming, the influential chairman of the Senate Finance Committee, said this week that he supports increasing funding for early childhood programs – but from other revenue sources than the permanent fund, currently estimated at $17.4 billion.

He said it’s likely that total spending on home visiting, prekindergarten and other early childhood programs will approach $500 million in the coming budget year.

“I haven’t changed my position at all,” Smith told the Journal. “I know the governor’s determined, but I’m also determined to be financially responsible.”

Senate committee chairs have the authority to determine when to schedule bills – and if they are even heard at all. In some past years, including last year, Smith did not hold a hearing on the permanent fund proposal once it reached his committee, saying it did not have the necessary votes to advance.

Pros and cons

This year’s proposal calls for the annual distribution rate from the permanent fund to go up by 1 percentage point – from 5 percent to 6 percent – into perpetuity.

That would generate an estimated $170 million for early childhood programs during the 2022 budget year, the earliest it would likely be in place, according to a fiscal analysis of the legislation.

The State Investment Council, which oversees investment of New Mexico’s permanent funds, is taking a neutral position on the proposal.

An SIC analysis of the measure predicted the Land Grant Permanent Fund would continue to grow in size over the next 20 to 30 years even at the higher distribution rate, due to expectations of “healthy if not robust” tax and royalty inflows from the oil and natural gas industry during that period.

But the analysis also concluded the permanent fund would distribute more money to public schools and other beneficiaries in the long run if it remained at the 5 percent level, given the expectation that the fund would grow more rapidly at the lower distribution rate.

By 2048 and thereafter, the money available at the current distribution rate would actually surpass the dollars available at the higher distribution rate, provided a net average investment return of 6.8 percent annually, according to the analysis.

And by 2058, the final year the analysis considers, the fund would generate $330 million less if the proposal to increase the distribution rate to 6 percent passes.

In other words, the question facing lawmakers is this: Is having more money available to spend on early childhood programs over the next 30 years worth having less money available for education in the future?

Yearslong effort

For years, supporters have argued that a cash infusion into programs benefiting the state’s youngest residents is needed now, given that New Mexico is struggling with chronically high poverty rates and a string of high-profile child abuse cases.

During Tuesday’s rally, state Land Commissioner Stephanie Garcia Richard said her office is on track to bring in more than $1 billion this year.

“Don’t you think we could use a little bit of that for early childhood education?” she asked a crowd of cheering families in the Capitol rotunda.

The Land Grant Permanent Fund gets income primarily from oil and natural gas taxes and investment gains. It already distributes millions of dollars annually for public schools and other basic programs.

For the budget year starting in July, the fund will distribute a record $784 million – an increase of $36.8 million from this year. A smaller permanent fund will distribute an additional $225 million, according to SIC figures.

Backers of an increased distribution, who include top bishops in the state’s Roman Catholic church, point out that the proposal to tap the permanent fund would not rely on a tax increase to increase funding for early childhood programs.

But critics have raised concerns the plan would undermine the fund’s long-term health.

“That’s the only real stable revenue source we have,” said Smith, who described fiscally responsible Democrats as increasingly becoming an “endangered species.”

“I do want to fund early childhood programs … and I have a track record of doing just that,” he added, referring to a steady recent increase in state general fund spending on such programs.

This year’s proposal would have to be approved by statewide voters, likely in November 2020, if approved by both the Senate and House. It would also require approval from the U.S. Congress.

Journal Capitol Bureau reporter Dan McKay contributed to this report.

 

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