by James Jimenez
December 2, 2014
Our nation and our state must have the public infrastructure our businesses need in order to deliver their goods and services. This infrastructure includes a transportation network – from roads to railways to airports – a telecommunications network, and public works such as water and sewer systems and an electrical grid. All of these systems are vital for our modern economy and our quality of life. Building and maintaining them has the added advantage of creating jobs. Government has an important role in ensuring that this infrastructure is in place, and that it is safe, effective and accessible to everyone.
In 2015, state lawmakers will likely face a choice over how to best invest one of the state’s permanent funds that is used to create and maintain this critical infrastructure. You probably recall that there has been an on-going debate over whether to invest 1 percent of the $14 billion Land Grant Permanent Fund in high-quality early childhood education or to leave it invested in stocks and bonds. (My preference would be to invest in children and the 18 percent return such investments provide, but that is a matter for another day.) While the $14 billion school fund has been getting much of the attention lately, it’s not the state’s only permanent fund.
But before we get any farther into how to best invest permanent funds, let’s briefly review how New Mexico’s labor market is faring. Our state’s employment growth is an anemic 0.8 percent – the lowest in the region and far below the U.S. average of 2 percent. More than 60,000 New Mexicans can’t find a job. In fact, we still have 17,000 fewer construction jobs than we did in 2007.
Arguably one of the best short- and long-term strategies for putting people to work and improving the economy is to build public infrastructure. The new jobs are the short-term benefit. The resulting infrastructure, which is the foundation for business investment, is the long-term benefit. In a capital-poor state like New Mexico, these investments become even more important as we seek to diversify our economy.
At the state level, there are a handful of sources of money for these projects – surplus general fund dollars, general obligation bonds, road funds, and severance tax bonds. There are others, but these are the main sources. Severance tax bonds may be the most important source of all.
Severance tax revenues come from taxes imposed on the ‘severing’ of oil, natural gas, and other resources from the ground. These tax revenues are first used to pay for the kinds of infrastructure projects cited above. Any revenues not used for these projects are deposited in the Severance Tax Permanent Fund. This fund was created by New Mexico voters in 1976 as a way of trying to ensure that future generations would reap the benefit from the extraction of oil, natural gas and minerals long after those resources were depleted. The Severance Tax Permanent Fund is invested in stocks and bonds, and any earnings are rolled back into the fund. A distribution from the fund is made to the state general fund to benefit the people of New Mexico.
Recently, the State Investment Council – the state agency charged with overseeing the investment of the Severance Tax Permanent Fund – called for a change in the spending policy of severance tax revenues so that more money would flow into the Severance Tax Permanent Fund, making less money available for public infrastructure. That’s right, they want to see less money spent on public school improvements, water projects, wastewater projects, parks and so on. Why? They say they want to protect the principle of the fund so that it will continue to grow. To what size? Well, the fund is currently about $4.5 billion – yes, that is in billions. While protecting the fund is very important, growth for the sake of growth doesn’t serve New Mexicans well.
So what would you do with the state’s $4.5 billion? Should we help put people back to work? Should we invest in our schools and infrastructure? Should we continue to invest in a strong foundation for economic development and quality of life? Or should we take the advice of the State Investment Council and “grow the fund” by sending more money to Wall Street? New Mexico’s poor economic performance indicates we need more economic development investments not fewer!
James Jimenez is Director of Research, Policy and Advocacy Integration at NM Voices for Children