By Daniel J. Chacón
The Santa Fe New Mexican

Every now and then, Jon Clark has trouble sleeping at night.

Given his responsibilities at work, can you blame him?

As New Mexico’s state investment officer, Clark oversees more than $61 billion in estimated total assets under the management of the New Mexico State Investment Council.

“I think about this job almost every moment that I’m awake,” said Clark, who stepped into the high-profile post a little over a year ago.

“I don’t have kids,” Clark added. “But I have so many friends who have kids, and it is incredibly important to me that we do the best that we can with the role that we have to create a bright future for tomorrow.”

And bright it is.

Total assets managed by the State Investment Council continue to grow.

In August, they were $57.8 billion, more than double what they were five years ago.

While the creation of the council dates to 1958 when it was established to manage the Land Grant Permanent Fund, its responsibilities have ballooned amid a push to create additional investment funds as part of a strategy to turn what lawmakers call “now money” into “future money” as a bonanza in oil income starts to decline.

The strategy is one lawmakers hope to replicate during this year’s 60-day session.

The number of funds currently managed by the State Investment Council has grown to 12, up from five in 2019.

Lawmakers this year are proposing a slew of new investment funds for the council to manage that also are intended to spin off revenues into the future while the state is still awash in cash.

The most high-profile, Senate Bill 1, a proposed behavioral health trust fund, passed the House on Friday. Originally proposed at $1 billion, the amount of money that would go into the fund was stripped from the bill by the Senate Finance Committee and will be decided later. 

Senate Majority Leader Peter Wirth, a Santa Fe Democrat, said the Legislature has been investing “huge amounts of nonrecurring money” rather than spending it all on new programs that would require ongoing funding.

“By spinning off a total return interest, say 5% of a billion dollars, basically we’re taking ‘now money’ and making ‘future money,’ ” he said.

“That direction, which really was led by John Arthur Smith when he created the early childhood fund, has allowed us to navigate through an extraordinary time here in New Mexico with these massive budget surpluses to really plan for the future,” Wirth said, referring to the late Democratic senator who served as the longtime chairman of the Senate Finance Committee.

The investments have also allowed the state to “make sure that we’re not just spending every dollar on new programs that will lead to all those roller coasters that we’ve been on for so many years,” he added. “I think it’s allowed us to put stability back into our budgeting in a way that I certainly, in the time I’ve been here, have not seen, so it’s very positive.”

Michael Coleman, chief spokesperson for Gov. Michelle Lujan Grisham — who chairs the State Investment Council — echoed the sentiment.

“The strategic stewardship of New Mexico’s $61 billion permanent funds is securing our state’s economic future,” he said in a statement.

“With proper management and oversight, our permanent fund investments are projected to surpass oil and gas revenue by 2039 — transforming today’s natural resource wealth into lasting prosperity for generations of New Mexicans,” Coleman said. “These funds now generate more than $2 billion annually for education and critical services and are helping to build a stronger foundation for our state’s future.”

Coleman said the Lujan Grisham administration is monitoring SB 1 and other bills that are part of a larger behavioral health package.

Coleman noted support for a proposed constitutional amendment to establish the early childhood trust fund as a permanent trust fund. The sponsor, Sen. Michael Padilla, D-Albuquerque, is sponsoring a companion bill that would, among other things, double the annual distribution from the fund to $500 million.

“By enshrining the Early Childhood Trust Fund in our constitution, we’re making an ironclad promise to New Mexico’s youngest children and their families,” Coleman said, adding the proposed $500 million annual investment would secure a universal and high-quality early childhood system for generations of New Mexicans.

Other bills introduced during the session to create new funds include:

• Senate Bill 88 would create a Medicaid Trust Fund. It would be seeded with a $300 million general fund appropriation.
• Senate Bill 234 would create a new Tribal Education Trust Fund with an initial investment of $100 million from the general fund.
• House Bill 25 would create a new Land Grant-Merced Infrastructure Trust Fund. It seeks an initial $20 million general fund investment.
• Senate Bill 358 would create an Equine Welfare Trust Fund with an initial $20 million investment.
• House Bill 113 would create an Animal Welfare Trust Fund, starting with a $10 million general fund appropriation.

Room for improvement

New Mexico’s investment funds have allowed state government to pay for a level of service that doesn’t burden the taxpayer as a result of the bounty from oil and gas.

The Early Childhood Education and Care Department, for example, has proposed a $995 million budget for fiscal year 2026. That is due in large part to investment income from the now more than $9 billion Early Childhood Education and Care Fund, which was created in 2020 to provide recurring revenue to support early childhood education and care services. 

“Without these distributions from us back to the state, taxes would have to go up on every New Mexican if we wanted to have this level of service, so we’re both saving taxpayers money and being able to provide higher levels of services,” Clark said, adding the investment income is expected to grow significantly over time.

“We’re estimating that by 2050, our distributions to the state will be a third of all general fund revenues, far eclipsing all the corporate and personal income taxes and being essentially right on par with all sales taxes,” he said. “That’s incredible, that a third of the state’s entire revenue source could come from our investment returns and distributions back to the state.”

The investment funds have room for improvement.

A performance report by the Legislative Finance Committee, whose duties include providing objective fiscal and public policy analyses to the Legislature, found the $10 billion Severance Tax Permanent Fund is one of the lowest-performing sovereign wealth funds, or permanent endowment funds, in the country.

“Performance of the STPF is important because it is the primary fund the state relies on to overcome future declining oil and gas revenues,” the October 2024 report states.

In a recent quarter, the fund recorded a one-year return of 6.87%, while the $32 million Land Grant Permanent Fund’s return was 8.47% over the same period.

“This continues a yearslong trend, where STPF returns have been below the LGPF for the last five fiscal years,” the report states. “This performance gap is estimated to cost the general fund $160 million over the next 10 years and grow in the future, with billions in lost balances.”

Clark said the low returns are attributed to a combination of factors, including understaffing at the State Investment Council, which is an ongoing concern for Clark amid efforts in the Legislature to establish other funds his agency would manage.

“The other is there are portion of that fund that by statute are set aside for lower returning programs,” including the New Mexico Private Equity Investment Program and a small business recovery loan program created in response to the COVID-19 pandemic.

Changes to the private equity investment program have been implemented to improve returns, Clark said.

“But a lot of these changes have just happened in the last two years and aren’t showing up yet on the investment return side, but they will in the years to come,” he said.

‘Life-changing’ legislation

Like Coleman, Clark noted the investment funds are already funneling more than $2 billion back to state government for its annual spending.

“This year, our distributions back to the state are funding 27% of all K-through-12 education in the state,” he said. “That’s huge, and that number will grow over time, but the fact that we’re already paying for more than a quarter of K-through-12 education is incredible.”

The investment income is paying for 58% of all early childhood education programming, he added.

“With the budget as it currently stands [for the upcoming fiscal year], that number is set to increase significantly,” Clark said.

Clark said New Mexico is among a little over a dozen states that have such funds.

“When we were given statehood and given lands from the federal government to manage — about a third of New Mexico’s land mass is owned by the state — a lot of these states did set up sovereign wealth funds,” he said.

But what has really helped New Mexico is a combination of two factors, Clark said.

“One is that we have become the second largest oil-producing state in the country, thanks to the Permian Basin,” he said.

The second is Senate Bill 26, which transfers excess oil and gas revenue to the Severance Tax Permanent Fund.

“That bill single handedly changed the future of New Mexico,” he said. “Without that bill, we would not be able to offset the declines in oil and gas. … That one bill is what is allowing us to completely offset oil and gas revenue losses over time.”

Clark said he couldn’t emphasize how “life-changing” the legislation has been for New Mexico.

“Legislative economists estimate that over the next five years that Senate Bill 26 from two years ago will take out an additional 55% of volatility from the state’s general fund,” he said. “So, we will be going from one of the top five revenue volatility states in the country to having one of the lowest rates of revenue volatility, and the great thing about that is it allows long-term strategic planning.”

Clark said the idea of turning “now money” into “future money” isn’t some distant notion.

“This is going to help five years from now, 10 years from now,” he said. “It’s going to help this current generation, as well as the generations to come.”