NM lawmakers question need for $2.7 billion in savings funds

Copyright © 2021 Albuquerque Journal

SANTA FE – With New Mexico in line for a huge projected revenue windfall, large amounts of money are expected to flow into two state savings funds that lawmakers set up to provide a ready resource during cash-lean years.

But some legislators are questioning the need for roughly $2.7 billion to be parked in the two funds – the Early Childhood Trust Fund and the state’s rainy day fund – by the end of the current budget year and say they may pursue legislative changes aimed at limiting how much money goes into them.

Rep. Patricia Lundstrom, D-Gallup, the chairwoman of the Legislative Finance Committee, said Tuesday that she has asked legislative staffers to look into possible changes to the Early Childhood Trust Fund in particular, including a possible cap on the fund’s total balances.

“I don’t want money sitting in funds when we have so many needs,” Lundstrom told the Journal.

She said lawmakers never envisioned such a huge infusion of revenue into the funds in a short period, while also pointing out that New Mexico early childhood programs could get an additional infusion of annual funding from the state’s largest permanent fund if voters approve a constitutional amendment scheduled to appear on the 2022 general election ballot.

The rainy day fund, technically known as the Tax Stabilization Reserve Fund, was established by lawmakers in 2017 and gets money from tax collections on the oil and natural gas industries that exceed a five-year rolling average.

The Early Childhood Trust Fund was set up in 2020 and gets money from the same revenue source when total state cash reserves amount to 25% or more of the state’s approved spending level. The trust fund, which makes an annual distribution to help fund early childhood programs statewide, can also get money from mineral leasing payments on federal land.

Based on revenue estimates released last month by executive and legislative economists, a total of $1.8 billion is projected to be in the rainy day fund at the end of the current budget year, which started July 1 – or more than half the state’s estimated $3.1 billion in total reserves.

And more than $1.1 billion is projected to be transferred into the Early Childhood Trust Fund over a three-year period ending in June 2023.

Lawmakers made some minor changes to accessing money from the rainy day fund during the 2020 legislative session, and more structural tweaks could be proposed for the 30-day session that starts in January.

“That fund is getting pretty big, and I think we need to take a look as a Legislature at how it’s structured,” House Majority Leader Javier Martínez, D-Albuquerque, said during a legislative committee hearing last week.

Rep. Antonio “Moe” Maestas, D-Albuquerque, was even more blunt, saying the state could withstand two consecutive decadelong economic downturns, given the amount of money in the savings funds.

“Money sitting in an account is actually counterproductive to the future of our state,” Maestas said.

However, other lawmakers say there should be ample caution when it comes to spending down the projected budget windfall.

Sen. Crystal Diamond, R-Elephant Butte, said legislators should be mindful of the historic volatility of oil and gas revenues – and the impact of the COVID-19 pandemic.

“We do not know what the future holds, and as such, we should think twice before spending exorbitantly simply because our coffers appear to be full today,” Diamond said.

In all, the recent revenue estimates project New Mexico lawmakers will have nearly $1.4 billion in “new” money in the coming year – a figure that represents the difference between expected revenue and the state’s current $7.4 billion budget.

Both Gov. Michelle Lujan Grisham and the Legislature are expected to unveil their spending recommendations before the start of next year’s 30-day legislative session.

Meanwhile, the governor has not announced her administration’s final plan for using $1.7 billion in federal relief funds, although some of that money has been earmarked for restoring New Mexico’s largely depleted unemployment fund and temporarily boosting wage levels for chile field workers.

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