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UPDATED: Ex-Legislators Decry Drain on Permanent Fund

SANTA FE — Former legislators complained Tuesday that a nearly $4 billion state endowment fund that helps finance schools and other programs has been shortchanged because of a decade-long spending spree on capital projects by New Mexico’s elected officials in the past decade.

John Bigbee of La Mesa and Bob Grant of Albuquerque, who served together as Republican House members in the 1970s, advocate revising state law to require more revenues from oil and natural gas production to flow into the Severance Tax Permanent Fund.

The Legislature, with the support of past governors, has diverted increasingly amounts of those taxes for capital projects.

Until 1999, half of severance taxes went into the endowment fund and half could be used to pay off bonds that finance capital improvements. Now, up to 95 percent of severance tax revenue can go for bond debt.

Most of that increase in bond money has gone for public school construction projects. Lawmakers implemented a new financing system, which relies on severance tax revenues, to resolve a lawsuit that alleged inequities in how the state allocated school construction money. A judge determined in 1999 that the state was violating a constitutional requirement for a uniform system of public schools.

Bigbee and Grant outlined their concerns about the severance tax fund in testimony to the State Investment Council, which oversees investments of fund assets.

Nearly $400 million in severance tax revenues were deposited in the permanent fund from 2002 to 2011, according to the former lawmakers. They estimated an additional $1.3 billion would have gone into the fund if the state had continued to earmark half of severance taxes for the long-term endowment.

“I am not criticizing anybody here. But I think what we’re doing is selling part of the farm in depleting this endowment,” said Bigbee. “And when you do that pretty soon you end up without a farm and without any cash too.”

Besides being a source of capital project financing, the permanent fund makes an annual distribution to the state’s main budget account to help finance operations of schools, universities, courts, health care and other government services.

Because the yearly payout is limited to a percentage of the fund’s five-year average market value, the permanent fund will continue to grow — even with the spending on capital projects — as long as investment earnings exceed how much is distributed for government operations.

Grant said the Legislature should approve a change in state law to allow the fund to grow as rapidly as possible, which would provide a larger pool of money that could be used in the future. He described the permanent fund as an “enormous money-making machine.”

But Rep. Jim Trujillo, D-Santa Fe, took issue with the proposed fund restrictions, saying investments in education were vital for New Mexico’s economy and creating jobs.

“Ultimately it’s the public’s money. They own it. If they say they want to spend it all tomorrow, let them. We’re not the gatekeepers,” said Trujillo.

Council member Doug Brown said it was up to the Legislature, not the investment group, to consider changes to the permanent fund.

New Mexico has another large endowment fund besides the Severance Tax Permanent Fund. The Land Grant Permanent Fund, which was valued at $12 billion at the end of June, gets royalties from oil and gas and fees from users of state land, including grazing leases. The two funds accounted for about $600 million, or 12 percent, of the money used to pay for operations of schools and other government programs last year.

Trujillo has sponsored a measure that would allow voters to decide whether to continue a higher yearly payout for education from the land grant fund.

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Oct. 25, 2011 2:53 p.m.

By Barry Massey / The Associated Press

SANTA FE — Former legislators say a state endowment fund that helps finance schools and other programs has been shortchanged because of a spending spree by New Mexico’s elected officials in the past decade.

Former Republican Reps. John Bigbee of La Mesa and Bob Grant of Albuquerque outlined their concerns Tuesday to state investment officials.

The ex-lawmakers say not enough of the state’s taxes from oil and natural gas production are flowing into the Severance Tax Permanent Fund, which was valued at nearly $4 billion at the end of June.

Most of those revenues are used for bond financing of capital projects.

Bigbee and Grant estimate an extra $1 billion would have gone into the endowment fund since 2002 if the state earmarked half of severance taxes for the long-term fund.

 

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