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Keep NM’s permanent fund ‘permanent’
Sen. John Arthur Smith (Photo by Heath Haussamen)
The relatively short-term benefits of hundreds of millions of dollars in extra cash aren’t worth the costs of making New Mexico’s ‘permanent’ fund anything but.
New Mexico is fortunate to have been born a ‘trust fund baby,’ admitted to the Union a century ago with a land grant permanent fund that generates hundreds of millions of dollars each year for public schools and other state institutions.
Like many trust fund babies, we must resist the understandable temptation to spend too much of our good fortune now or we will regret the decision in the years to come.
Legislation under consideration in Santa Fe would dramatically and dangerously increase the amount of money we take from the fund each year, threatening the fund’s long-term viability and actually reducing the amount of money we can count on in the years to come.
Supporters of the proposal to spend more now make a compelling case, arguing that the extra money is needed to improve our schools and to pay for early childhood programs (Editor’s note: See their arguments here and here). But their well-intentioned reasoning is short-sighted, risky and constitutionally questionable.
We’ve been here before
Distributions from the land grant permanent fund were changed in 1996 to protect the fund from losing value to inflation and to provide public schools and other beneficiaries with a more predictable annual income. Voters that year approved a constitutional amendment to change the distribution from all the fund’s annual earnings to a flat 4.7 percent of the short-term value of the fund — a reasonable amount that offset the need for hundreds of millions of dollars each year in extra taxes and that still allowed the fund to grow, provided that it was invested wisely and inflation remained low.
The fund and its beneficiaries did reasonably well under this new distribution formula. Fund managers, freed from the pressure to invest for short-term gains and buoyed by strong financial markets, grew the fund from about $4.6 billion in 1996 to about $6.8 billion in 2003, when the temptation to squeeze more money from the fund proved too great.
It was in that year that the previous governor successfully persuaded New Mexicans to raise the annual distribution from the prudent 4.7 percent of the fund’s value to a riskier 5.8 percent. The argument then was much the same as it is now — the money was needed for valuable education reforms and the increase would only be temporary, dropping to 5.5 percent by July 2012 and finally down to 5 percent in 2016.
Well, we’re fast approaching July 2012 and we’re already being asked to raise the distribution, this time to a whopping 7 percent of the value of the fund annually from fiscal years 2014 through 2023. But don’t worry, we’re told, the distribution will fall back to less than 5.8 percent after that.
Given this record, it’s not hard to imagine that voters in the early 2020s will be asked to maintain or even raise the distribution once again.
Short-term benefits aren’t worth the cost
The extra money would be devoted to early childhood education programs and would likely be funneled to private companies that provide those services. This is certainly a worthy cause, but the Office of the Attorney General has raised serious questions about whether this arrangement would be legal under the state Constitution and the federal enabling act that admitted New Mexico to the United States.
The land grant permanent fund is not a savings account or a “rainy day fund” to be tapped when times are tough. The state’s general fund reserves serve that purpose. The land grant permanent fund is a trust fund designed to generate steady, annual income for the state, but it can only do that if the amount we take out plus inflation is less than our investment earnings plus new income to the fund.
The current distribution of 5.8 percent pushes that envelope; a distribution of 7 percent would almost certainly shred it, slowly depleting the value of the fund and costing taxpayers more money in the long run.
The relatively short-term benefits of hundreds of millions of dollars in extra cash aren’t worth the costs of making New Mexico’s “permanent” fund anything but.
Smith, a Democrat, is chair of the Senate Finance Committee and represents the Deming-area Senate District 35.
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break them out of the cycle of academic failure and poverty? Is it sensible to sit on a $10 billion education fund and claim we can’t afford it? Calling the proposed investment of 1.5% of $10 billion ”dangerous” “threatening” and “risky” is silly. What is riskier and more threatening is to do nothing to change the sorry set-up facing our kids. Especially when the facts add up to show there is every reason to think that permanent fund will indeed stay permanent.
It’s time to try something different for education. Senator Smith said so himself! http://www.youtube.com/watch?v=Oaw4VwQ9ibw “these results don’t support business as usual.” The proposal to redefine education as beginning at birth is a very innovative and research-based approach. It’s a win-win idea for New Mexico. Calling those benefits short-term means that Smith is not familiar with the numerous, rigorous, 30-year studies that show lasting results of early childhood programs that make lasting changes and yield huge cost savings for all of society.
Anyone who takes the time to add up how the Land Grant Permanent Fund is doing can tell you that the fund can withstand additional distributions. It is not fragile. In fact it’s quite healthy. Senator Smith stops short of pointing out that though voters approved increasing the distribution to 5.8%, the fund grew another $3.8 billion even while distributing $4.2 billion to schools from 2003-2012. Growing by $3.8 billion even after the recent economic disaster is quite impressive – the fund is not that fragile!
Senator Smith poses the supposed legal challenges as an argument to do nothing. Even the State’s top lawyer – the Attorney General has said that amending the pertinent laws, as proposed here, will in fact make it legal and allow the state to continue contracting with private providers who work with children from ages zero to five.
There isn’t a single argument here that stands on fact, yet Senator Smith got his way yesterday in the Senate Finance Committee. His vote to kill this innovative proposal, while saying that he needs to protect us from ourselves is plainly undemocratic. We elect people to represent our interests. Voters should have had the chance to say what they want for our kids’ future. To say that we are better off investing in Wall Street than to give our kid what they need is, well, dangerous and risky.
“Sen Sanchez, pick up the white courtesy phone”
The protection of the Permanent Fund’s integrity is paramount. This is an almost-perennial argument, but it becomes more heated every time we find ourselves in economic difficulties. That some people are so short-sighted as to think that the Fund’s current return-on-investment can’t get lower in the future is unsurprising; that they can’t seem to see that we wrote our Constitution the way we did specifically to protect it from such short-sightedness, however, demonstrates an impressive näiveté.
Skeptic: you seem confused over the amount of the fund that would be distributed under the constitutional amendment (7%) with the overall growth rate of the fund (more than 10%). The fund receives income from more than one source: royalties (on oil and gas production) and investments—that’s why the growth rate beats Wall Street and other investment averages. While the fund grows more than 10% a year, we distribute a little over half that (5.5%). With the amendment, you’d subtract 7 from 10 – and you’d still be left with 3% to fold back into the fund. So, today’s math lesson is: the fund would still grow.
MJM: you need to do some study of your own. The fund only supplies about 13% of the K-12 operating budget in New Mexico—or about the same percent as the federal government. Perhaps you consider that the “vast majority” but I don’t. The bulk of the operating costs for K-12 come from the state’s general fund. Also, bonds pay for capital projects, not operations, so you’re comparing apples to oranges. Our bond ratings have nothing to do with the size of our school permanent fund.
Innovate. Take a bit of time and go study the sources and uses of funds of local school districts in the State of NM. You will see that the reason schools have good bond ratings is because the Permanent Fund provides the vast majority of the operational funds for both them and other beneficiaries of the Fund. Also, NM has a very low property tax burden when compared with other states. If you want so spend down the Fund,why not give it to the tax payers in NM on a pro rata basis? We will need those funds to pay our higher property taxes when those funds are gond and operational funds are required by local sources. Oh by the way the ratings on many school districts will go down too. Do you really think Mora School District will have the same bond rating as say..Albuquerque? Let the Permanent Fund stay…Permanent.
Can anyone tell me how to invest and get a reliable 7% a year?
Bonds? Ten year treasuries are paying 2%
Real Estate? yeah right.
Stocks? in the very long run, maybe, but the S&P is down even over the last twelve years.
It’s pretty simple – spending 7% of the funds a year will reduces them.
Interest from those funds mostly go to K-12 education now.
If you reduce those funds, your’re stealing it from K-12 education in the future.
Governments don’t do particularly well with accumulated sums of money, though,
because of pressure just like this to spend.
Fortunately, we still have grown ups like Smith who understand.
Senator Smith is wrong. And repeating over and over that this proposal would “spend down” the fund does not make it true. The fund will continue to grow. It will grow at a slower rate, but it still grows. NMom is right- if Smith is okay with using these funds to pay for the State Penitentiary and not okay with funding early childhood…Deming voters should show him the door. Enough is enough with shortsighted priorities!
Senator Smith is correct. We have but a few choices. Spend down the permanent Fund…and subject ourselves to higher property taxes and other taxes required to operate schools. Our mill levies and Bond Proceeds only cover the hard assets of schools…bricks and sticks. The other operations are covered by the permanent fund. So if you want to becme even more uncompetitive as a state lets spend down the Permanent Fund…Because of course…it is for the children….If only that were true.
Among the current beneficiaries of the $10Billion+ land grant permanent fund is the PENITENTIARY OF NM- yet Senator John Arthur Smith is against using a small % of this fund for New Mexico’s CHILDREN…I truly can’t believe a public servant of NM would make such a poor policy/political decision. I hope he has a change of heart…if not hopefully DEMING VOTERS ARE WATCHING.
Using money from the permanent fund is shortsighted? How about allowing New Mexico’s children to fall further behind as we hoard money that can change lives. This is just embarrassing. Early childhood education matters, and matters to every citizen of New Mexico. Why wait until a child is 5, when they can start learning 2-3 years before? This is stingy and just wrong. This is what money is for, to be spent on building a smarter, better educated population. Hear the amendment! Educate New Mexican children early!
Legislators always talk about how important investing in kids early is yet they PARENTS don’t do anything about it.
Ultimately, what responsibility should parents have versus government?
If parents aren’t teaching their children to read, shouldn’t we just remove children from homes
and put them in government assimilation camps?
Once the ‘permanent’ is spent, how will these programs be funded?
Ultimately, the permanent fund will be squandered because of the bladder theory.
The more money builds up, the bigger the incentive to pee it all away.
John Arthur Smith is correct to be wary of privatized, for profit early childhood development centers. They would require very strict regulation and inspections. Profits taken from and wages paid by them would have to be strictly capped to avoid fraud and counter productive incentives to put money over the well being of children. This would be the case where the sunshine law of public disclosure of personnel and compensation would be required. The professionals that work with the children should make a living, dignified wage to help stimulate the NM economy. This could be a jobs bill.
Ask yourself this question, is NM population growth outpacing it’s capacity to pay for optimum development and nurturing of it’s people?
I was employed and wealthy when the time came to pay for pre-school. I am grateful to have had the benefit of expert socialization for my child. It is said that, in Socorro, that the high school teachers can tell which kids attended that particular pre-school because the kids are known for their exemplary behavior and virtually guaranteed graduation.
Good early childhood education is the difference between having grunting feral kids coming into the first grade or socialized well behaved children with an established vocabulary on which to build.
The ostensible wisdom of John Arthur Smith is anything but…
He couldn’t have been more clear. He doesn’t think investing in our kids and early learning is a good investment despite decades of studies that prove otherwise. Smith’s sponsorship of the 3rd Grade Retention bill – eliminating parent rights – demonstrates he ignores the easiest solution – Invest in Early Learning!
But really, Smith is not dumb. So why, Smith, why? He knows that early learning returns $10 every year of a child’s life for every $1 invested. That’s way better than wall-street returns. ahhhhh ha!
On the other side of the ledger for this Constitutional Amendment for Smith is the lost investment of over a Billion dollars into Wall-Street corporations such as Chevron, ExxonMobil, and Altria (formerly Kraft foods.). It’s no surprise that Smith has received thousands of dollars to win his campaigns from those same three corporations over the last ten years. Smith picks Wall-Street over investing in our kids. Smith picks Wall-Street over his constituents that live in the poorest county in New Mexico.
Chairman Smith neglects to divulge 3 facts about the Early Education Permanent Fund: 1) It has a trigger that stops the disbursement if the Fund falls below $8 billion. 2) The Legislature will retain the power to stop the disbursement at any time. 3) The disbursement ends after 10 years. The fact is that even though the historical growth of the Fund—even during the worst economic crisis of our generation—has been greater than the proposed 7% disbursement, the Early Ed proposal offers redundant, rock-solid protections for the Fund. Rather than sit on this proposal, the Chairman should give SJR 9 a hearing in his committee, so its merits can be openly debated rather than single-handedly buried by Senator Smith.
Last year, Senator Smith said he wanted to hold a hearing on this proposal. He then sat on the proposal—without a hearing—until the legislative session was over. This year, it looks like he’s doing the same thing. The Permanent Fund for Early Education bill has cleared 2 House and 2 Senate committees and has been waiting for a hearing in Senator Smith’s Finance Committee for a week now. I find it offensive that Senator Smith is willing to lay out his opinion in NM Politics but won’t allow a debate in his committee. Something is seriously wrong with our system when it allows one man—Senator Smith—to strangle a proposal that has been approved by scores of other legislators without giving it its day in his committee.
This permanent fund is the ONLY funding solution when it comes to fixing our failing education system. Legislators always talk about how important investing in kids early is yet they don’t do anything about it. Without this money, centers across the state will continue to close down, teachers will continue to lose their jobs, and children will be denied the access to a quality education. This would not be a “short term benefit” but a LONG term benefit.
First and foremost, investment in early education programs is just that – an investment. Although investments are often regarded as risky, I can think of none safer than early ed. Numerous studies have shown that early education programs lead to better performance in later school programs, lower dropout rates, and more recipients of higher ed degrees. These trends have been shown to lead to other trends, years down the road — more start-up companies, higher employment rates, lower crime rates, state-wide economic growth, and higher levels of tax revenue, which then lead to greater investment in early education (and later education) programs, in a cyclical manner.
Let’s not fool ourselves here — New Mexico is in bad shape. We’re are one of the poorest states in the US. Our education programs are rated as one of the worst. We have phenomenally high drop-out rates, crime rates, teen pregnancy rates… We are failing and we cannot afford to fail anymore! An investment in early education is exactly the investment that we need to start to reverse these trends and make a future for ourselves. The Senator notes that New Mexico is a trust fund baby, and that now is not the time to invest. I fail to follow his train of thought. What exactly is the point of having a multi-billion dollar fund to preserve New Mexico’s future, when we clearly have no future to preserve?
The Senator notes that the proposed bill is questionably constitutional, and sites findings by the Attorney General. However, I would like to make particular note that the Senator was not present at the House Judiciary Committee hearing on this bill, when multiple legal experts (including Attorney General King, himself!), declared the legislation to be entirely constitutional.
Sen. Smith fails to discuss the safe-guards that are built into this piece of legislation. The proposed constitutional amendment would in fact invest millions into early education programs (as distributed by the state). So what happens when the permanent fund begins to run low? This bill has a safeguard allowing funding to be cut off by a Congressional vote. Furthermore, if by happenstance no one notices that the permanent fund is disappearing, a provision in the bill ends the additional funding of early education programs if the permanent fund drops below 8 billion.
In addition to pointing out the Senator’s inaccuracies, I feel obligated to make a personal appeal to the readers of this blog post and to the voters of New Mexico. I am a beneficiary of early education programs. I completed High School in the top of my class, graduated cum laude with two BA’s from UNM, have found gainful employment, and am now back at UNM seeking a 3rd higher education degree. I’d like to also note that I am not a criminal, that I always pay taxes, and that I have volunteered countless hours with numerous non-profit groups in order to make NM a better place to live. I feel that none of my successes would have been possible without my early education. As a future parent, I want my children, and all the children of future generations, to have the same access to early ed as I did. The only way to ensure that is for this bill to pass.
I anticipate that a majority of the voters of New Mexico will see eye to eye with me. But there is no way to know for sure unless our elected officials, the very people who are supposed to be making wise decisions to benefit the residents of this state), pass this bill. Even if Sen. Smith, for some unknown reason, holds a grudge against Pre-K programs, what does he have to lose by letting the voters decide the fate of the constitutional amendment? There is a lot more at stake for New Mexico’s future.
Even though Senator Smith may think the permanent fund needs to stay “permanent”, I still hope he hears his constituents and allows the bill to be heard as well. I think Senator Smith should keep his word as a senator and have the hearing for the Permanent Fund for Early Education. I think it’s ridiculous how they want to hold third graders back if they fail. Holding them back wouldn’t even have to be an option if they all had the chance for a quality early education. I should be saying early education, without the “quality” because without more funding, the quality of education has lowered and kids who are in early education facilities are not getting the education they truly deserve. These children can’t fight for themselves! We, as voters, should have the right to vote for this Constitutional Amendment ourselves and not have a Legislature single-handedly take that right away from us.
I am extremely shocked to see Senator Smith is still questioning investing more money into early education. Yes this permanent fund should be able to grow for many years to come, but if we are never going to use the money than whats the importance of even having it? The fund grows by 11% every year and will still continue to grow at 7% when we start the distribution. There is no risk when it comes to taking money from this fund and putting it into early education. The biggest risk we can take is not investing in the kids and their education.
New Mexico’s state general fund has never had enough money for early childhood education and never will. When it comes to education, New Mexico as a state is failing our kids. New Mexico puts all of its energy and focus into punishing kids and holding them back. Investing in kids as soon as they are born saves the state SO much in the future. We wouldn’t need to spend all the money on holding kids back and remediation. Graduation rates would go up and incarceration rates would go down. Senators like Smith keep talking about the “future” not realizing these kids are our future. New Mexico fails every year when it comes to education and I want to know when enough is enough?? If the money continues to sit there and not go into education, New Mexico will continue to fail its future.
I am moved to comment on Senator Smith’s blog post because it misrepresents fact and logic, yet he presents his view as if it is The Truth. First, the Land Grant Permanent Fund was set up to support our children’s education and has over $10 billion and is in no threat of being depleted. Second, the fund grows on average of more than 10% per year. Deduct the 7% called for in the legislation and you still have another 3% to roll back into the fund to be invested on Wall Street. That tells me the fund would continue to grow, regardless of what its annual income is from other sources. Senator Smith’s other major error is in referring to the benefits as ‘short-term.’ Numerous prominent, long-term studies have proven that the benefits of high quality early learning programs long outlast the expenditures. Children who have been served by these programs score better in reading and math, are less likely to need special education, and are more likely to graduate, go to college, and earn higher incomes than children not served. The children served are also less likely to become involved in crime, become teen parents, and need social welfare programs as adults. There is nothing short-term about those benefits. Besides, since when are our children not “worth” any investment?
It seems to me that paying for these incredibly valuable programs out of the school permanent fund makes complete sense. Besides, how else will our children benefit when the Legislature has been unwilling to adequately fund them. Yes, there are good years and bad years, but all the talk in the world can’t overcome the fact that we barely spend general funds on kids. Show me a time when preschool children have ever gotten more than 2% of the state budget. Because we’re so cheap, only a lucky few get to benefit from our excellent early childhood programs. Meanwhile, more than 25% of our children live in poverty—meaning they are at the greatest risk for failure in school, which ultimately leads to a less productive life.
Just yesterday, a story in the New York Times reported how the achievement gap is explained by income – that low-income kids lag behind their better-off peers and that this gap is widening. It’s time for people like Senator Smith to wake up and realize that we have a serious problem in New Mexico and something bold and drastic has to be done! If we simply continue to allow generation after generation of our young children go without the support systems and services they need to be successful New Mexico will never attract decent industry and jobs and will never work its way up from the bottom. Is that something we want to ‘keep permanent’ too?
It’s also sadly clear to me that Sen. Smith wields too much power and he does it without concern for his constituents (the counties he represents—Hidalgo, Luna and Sierra—are some of the poorest in the state). He single handedly killed this legislation last year by refusing to schedule a committee hearing in Senate Finance, of which he is chair. He did say recently on KNME’s inFocus that he would schedule it for a hearing this year, so I look forward to that day. The legislative clock is ticking and it’s time to put our money where our mouth is. This is an issue for the voters to decide, Mr. Smith. We are the trustees of the school permanent fund. It’s time you give us, the citizens and voters of New Mexico, the opportunity to make ourown informed decision!
I just hate to hear the old timers like Sen. Smith not fully understand the correlation between brain development in children from birth to 3, 4, and 5 years of age, and improvements in our precious NM children and their K-12 educations. Children start kindergarten behind every other industrialized nation in the world, unless you parents can afford to send you to a high priced preschool. ”frustratedvoter” is right, “Smith nailed it”… but what he is nailing is the coffin shut on the best option for educating our children here in our beautiful State. Let’s flunk every 3rd grader who can’t read, but let’s not start teaching children to read in their developmental years. Makes no sense to me. If the Permanent Fund isn’t the way to pay for it, does Sen. Smith give an alternative? Will he sponsor legislation to increase property taxes in NM to pay for it? Will he ask business in NM, especially large business, to pay a little more in taxes to generate an extra $150 million dollars per year to help early education provide the needed services the our children so desperately deserve and need? Will he convince these business that by investing their profits in the workforce of tomorrow? The answer is no, because Sen. Smith is doing what’s best for him and his friends in Santa Fe, which is making those who contribute to campaigns and keep him in office so he can have a nice big tax payer funded pension to live off of once he “retires” from the “volunteer” legislature. How you get paid a retirement for being a volunteer still makes no sense to me. Maybe Sen. Smith and the other “volunteers” who represent us would be willing to give up those tax payer funded pensions and give back to the children of New Mexico. What do you say Sen. Smith? Are you willing to carry legislation to increase property taxes? Ask business to contribute? Give up your tax payer funded pension?
Smith nailed it. I’m still pleasantly shocked we created our permanent funds (I think someone made us) and even more shocked we haven’t squandered them yet. I certainly understand the political temptation of raiding our grandchildren’s inheritance so we can have what we want today without having to face the burden of paying for it. But, resist we must. It’s like starting expensive wars or expanding programs while cutting taxes in the midst of increasing deficits. It’s irresponsible. Maybe we should just liquidate the funds, if we’re bent on making them insolvent anyway. Ditstribute them back to residents and tax it for the schools. Now there’s a vote that would likely pass, sadly, as I’m not being serious. Besides Smith, too few recognize that we’re all trust funders, with permanent fund distributions covering 10% of our general fund spending. Add in the revenue associated with the finite extractive industries, and it get’s closer to 50% than one might guess. What happens when we have to pay the whole tab ourselves? Then we’ll know what it is to be poor state. It seems the discussion should be more one of increasing the permanent funds. On the subject of expanded education progrmas, proponents of these or any ideas should have the political courage to discuss and debate the proposals in the context of raising taxes or cutting other spending to pay for it.