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Editorial: Nothing’s permanent in dwindling NM funds

It’s called the Severance Tax Permanent Fund, but like its fund siblings Tobacco Settlement and Water Trust, unless the state changes its current practice of diverting almost all the income stream, there won’t be much permanent about its bottom line in years to come.

State financial consultants recently analyzed the severance tax fund and came up with this bottom line: If the state continues to divert 95 percent of the fund’s income before it even goes into the fund, the odds are stacked against it even maintaining its value in the next 25 to 50 years. And you can likely forget about growth.

New Mexico used to put 50 percent of annual severance tax receipts into the fund, which pays for public school operation budgets in New Mexico. Since the mid 1990s the amount going into the fund has been cut three times, with the current 95-5 split in place since 2004. So it’s also no surprise last year’s total value of $4.43 billion was $400 million less than in 2007, before the Great Recession.

Despite repeated dire warnings, the Legislature has been loath to save a dollar it can spend – this year, SIC proposals to increase money going into the fund to a modest 12.5 percent never got out of committee.

The fiscal forecast is disturbing but not surprising.

The Land Grant Permanent Fund, while making an impressive comeback in recent years as the nation has slowly crawled back from the financial crisis of 2008, is a perennial target to bankroll vague plans to meet real needs. Lawmakers routinely try to increase the annual distribution rate beyond 5.5 percent, though other states and universities are at 5 percent or less.

The tobacco fund is also a regular mark, recently for the fiscally challenged lottery scholarship, and the water fund has not had revenue since 2008 but spends $4 million a year on infrastructure and “faces certain depletion.”

So diverting $180 million from the severance tax fund every year but only putting a few million in – especially when revenue is based on taxes on the finite natural resources of oil, gas and other mineral extraction on state lands – follows the same unrealistic rationale.

State Investment Council spokesman Charles Wollmann says the severance tax fund “numbers really bring home the dire odds we’re facing when it comes to growing or even maintaining the fund on a real-value basis.”

If that status quo remains, New Mexicans will find themselves having to pay more in taxes when bad policy makes the permanent funds all-too temporary. SIC member Linda Eitzen says “this permanent fund is a treasure that’s saving taxpayers money each year, because we’re paying money for them into the general fund. It’s sad, because that’s an asset we may not be able to count on.”

State lawmakers must approach the funds’ balance sheets as they do their own and finally protect the corpuses and revenue streams – for recipient programs and taxpayers who have to pick up the tab if they go broke.

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.

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