New Mexico’s permanent funds have provided a critical crutch to finance state programs for decades, but it’s a constant balancing act for the State Investment Council to keep growing the funds while satisfying spending demands.
Allocations from the funds historically have accounted for about 15 percent of the state’s annual budget. Without that, New Mexicans would be paying a lot more to support state programs, said Doug Brown, a former SIC vice chairman and dean of the University of New Mexico’s Anderson School of Management.
“Most citizens don’t understand the importance of the permanent funds in the state economy,” he said. “Without them, our taxes would be at least 15 percent higher.”
About 95 percent of the funds come from oil and gas royalties and other business operations on state lands that are paid into the Land Grant Permanent Fund and the Severance Tax Permanent Fund, plus returns from SIC investment of that money. The remaining 5 percent comes from a water trust fund, a tobacco fund and some state client money.
Thanks to robust investment returns in the last couple of years, plus a boom in oil and gas activity in southeastern New Mexico, the permanent funds grew to an all-time record of $18.64 billion in 2013. That, in turn, will allow the SIC to distribute about $778 million to the general fund in fiscal year 2015, or about $72 million more than the current fiscal year, said SIC spokesman Charles Wollmann.
About 84 percent of that money goes to public schools, with the rest supporting specialty schools, universities, hospitals, public buildings and other government operations.
But nearly all the growth now is coming from payments into the Land Grant Permanent Fund, which hit a record high of $13.28 billion in 2013. That’s a 16 percent jump from 2012 and 24 percent more than in 2007, the year before the recession.
In contrast, the Severance Tax Permanent Fund grew only nominally last year to $4.43 billion. That’s still about $400 million less than what was in the fund before the economy collapsed.
The slow growth reflects constant state pressure to spend more of the severance tax income, with barely $5 million out of more than $400 million that was collected last year in severance taxes actually paid into the fund. The rest was diverted to pay state bonds, Wollmann said.
As a result, the SIC will support a bill in this year’s legislative session to raise the amount of severance taxes that must be deposited in the permanent fund each year.