Note: since this was written, the permanent fund legislation was amended to add another quarter percent. I am reevaluating, not just because of the additional money but because of the last-minute introduction of the amendment.
If now is not an emergency, I don’t know what is.
If we don’t do enough, what’s the consequence?
I have always urged caution on invading New Mexico’s treasure, the Land Grant Permanent Fund. I have said the fund was never intended to be a “rainy day” fund to be drawn down when needed. It was intended to last forever, to grow through prudent investment and continue to serve as a reliable source of income.
But we have never experienced anything like 2020. The year is over, but the pandemic is not.
So this year I’m not cautious. It’s time to use some money from this fund for the urgent needs of New Mexico — especially the children who have been so harmed by the pandemic shutdowns. Figure out how to replenish the money later. That’s what you do in an emergency.
House Joint Resolution 1 and Senate Joint Resolution 1 both propose to withdraw an additional 1% every year from the fund. The House resolution is the one that’s moving.
The fund is currently valued at around $22 billion (tomorrow’s value is always subject to the whims of the marketplace). The distribution for the next fiscal year is estimated at about $908 million. As required by the state constitution, 86% of that goes to public education.
If HJR1 passes all the hurdles, about $196 million more would be distributed in the first year, with about $170 million going to education. The remaining $27 million would go to the fund’s 20 other beneficiaries.
That doesn’t happen for at least another year. If the proposal passes the legislature it must be approved by the voters, possibly in a special election. Then, because the fund was established as part of New Mexico’s statehood, it might have to be approved by Congress. That will depend on the final wording.
The original language earmarks the 86% for early childhood education, but that may change. And regardless of what it says, some of that money may be needed to stop the bleeding elsewhere. Once money has been distributed into the required line items in the general fund, money from other sources can, hypothetically, be shifted to cover other priorities.
Several bills are now in the legislature to provide tax breaks or other assistance to businesses and workers hurt by the pandemic. There’s also a bill to eliminate the state income tax on Social Security, a perennial subject of argument. Legislators are doing what they do year after year: preaching that we need to diversify the tax base so we are less dependent on oil and gas and then enacting policies that do the opposite.
Revenue from oil and gas has been hurt due to reduced demand, and more reductions may be coming due to revised federal policies. That affects both current revenue and future contributions to the fund.
Pennies from heaven may start falling due to legalized marijuana, if that legislation passes, but it will take a few years for the windfall to manifest, if it ever does. Having heard inconsistent reports from other states, I worry about the unknown side effects of legalization.
Nothing is unknown about the side effects of removing an additional 1% from the permanent fund. It reduces the money remaining to invest. After a few years, the amount available to distribute shrinks every year. So New Mexico’s reliable source of backup revenue becomes less reliable, unless the extra distribution stops.
The language has a provision to suspend distribution by a three-fifths vote of both houses of the legislature. But prudence dictates that the distribution should stop automatically after a fixed number of years, perhaps ten, and a vote of the legislature be required to resume it. This resolution needs a sunset clause.
Triple Spaced Again, © New Mexico News Services 2021