June 20–As New Mexico swings from the bust economy of a few years ago to a boom economy this year — with the state on track to take in more than $500 million more in revenue than last fiscal year, according to a tracking report released last week by the Legislative Finance Committee — it is the perfect time to combine some hard lessons of the past with smart actions of the present.
In 2016-17, state lawmakers had to look under every proverbial couch cushion and shake out every proverbial pocket to make up budget shortfalls in the hundreds of millions of dollars. There were tough cuts, controversial revenue sweeps and scaled-back spending plans. And in that vein, lawmakers also made the pragmatic decision last year to establish a true “rainy day” fund to help ride out future lean years. The current predicted uptick in revenue means more than $20 million will flow into that fund — so when revenue dries up in future budget years things aren’t as dire as they have been in the past.
But why stop there?
Earlier this month, state Investment Officer Steve Moise suggested to the Investments and Pensions Oversight Committee that instead of just sending the bulk of the new money into the state’s general fund — where it helps pay for public schools — the Legislature could earmark some of the new revenue for a particular purpose, such as early childhood education.
It’s a way to address a longstanding budget request now, while also ensuring new revenue goes to something virtually everyone agrees is important without sacrificing the sustainability of the state’s permanent funds.
For years, advocates have sought to further tap the multibillion-dollar Land Grant Permanent Fund, proposing an increase beyond the prudent 5 percent distribution rate. But there’s a reason for the “Permanent” in the fund’s name: it’s a sovereign wealth fund established to provide New Mexico with a meaningful income stream when oil and gas revenues dwindle — which they have done before and undoubtedly will do again. The fund income comes from leases, royalties, and taxes on oil and gas production in New Mexico, and from other activities on state lands. The State Investment Council also invests that money in stocks, bonds and other financial instruments to grow the funds. Every year, the land grant fund pays out 5 percent of its average value over the past five years into the state’s general fund to fuel around 15 percent of government, including public schools, universities, specialty schools and other state institutions.
And while those who have advocated for increasing that 5 percent maintain it’s a rainy day fund and say “it’s raining,” the fact is the LGPF has been around since statehood and needs to be here long after we and our children are gone. Other states and universities with such funds keep the distribution rates at 5 percent or under, because going in deeper jeopardizes the corpus and puts the fund at risk.
But earmarking its revenue during boom economies does not.
Rep. Tomás Salazar, a Las Vegas Democrat and chairman of the Investments and Pensions Oversight Committee, said the concept deserves more study. He’s right, especially considering the current boom in the Permian and San Juan basins. Rep. Larry Larrañaga, R-Albuquerque, says “what we have going on in southeast New Mexico is a black gold rush that’s absolutely unbelievable.” Sen. Carlos Cisneros, D-Questa, says “we have an opportunity to learn from history and prepare for that eventual downturn.” And Rep. Jim Townsend, R-Artesia, a retired oil company executive, says he thinks the current boom will likely last for the foreseeable future and “New Mexico is kind of sitting in the catbird seat in terms of production.”
Lawmakers should take advantage of that lofty perch and make another pragmatic decision that keeps our state on sound financial ground whether it’s boom or bust times.
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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