Letter To The Editor: Permanent Funds Of New Mexico

By VERNON N. KERR
Former Representative
 
Politicians and special interests drool at the sight and sound of the money in the state’s permanent funds. In every election cycle some candidate promises to use the permanent fund to do great things.

However, there are limitations, there are restrictions on how funds in these can be used and for good reason. These are not reserve funds or rainy day funds. They are dedicated monies.

There are three Permanent Funds, the Land Grant Permanent Fund (LGPF), the Severance Tax Permanent Fund (STPF) and the Tobacco Settlement Permanent Fund (TSPF). The largest and oldest is the LGPF that was created by the Enabling Act when New Mexico became a state in the union. Two designated sections of land out of each township (sections 2 and 32) were dedicated to the state for the purpose of deriving revenue(9million surface acres and 13 million acres with mineral rights) to support for specific purposes of government operations and state institutions. Some 20 recipients were set for the funds with the largest portion for public education.

Each of the parcels of grant land is tied directly to one of the 20 beneficiaries. These are not big bags of loose change to be dipped into for other purposes. Eighty-five per cent of the money goes to public education. The other beneficiaries receive the remaining 15 percent between them. The 19 other beneficiaries are universities, hospitals, and public buildings such as the capitol complex and special schools.

As of December 2017, the public schools were receiving almost $49 million each month of dedicated funding that may not be used for anything else. There were almost $18 billion dollars in the LGPF along up until the Richardson administration needed money without raising taxes. The constitutional rate for withdrawal from the LGPF was at 4.7% at that time. But the governor needed more, so he had the legislature pass a Joint Resolution calling for an amendment to the New Mexico constitution that would allow the maximum annual withdrawal to go 5.8%. The legislature passed a Joint Resolution to increase the take out up to 5.8%.

The legislative approval of the Joint Resolution was sent to Washington to obtain congressional approval, then on to narrowly pass a people’s referendum approval. It passed by only 169 votes, thus amending the constitution to the new rate. As a part of the sales pitch to pass the amendment there was a sunset clause in the resolution so that after a time ( ca. 8 years) the fund’s rate for dispersing funds would drop back to 5% as it is now. The increase in the public school’s funding would be offset as a similar amount that would take from the general fund appropriation to the education allotment. There would be money for other projects. The 5% now in effect allows for a good rate of return and also to allow growth of the corpus of the fund. The LGPF has increased by nearly $5 billion in the past ten years. All of it dedicated and not available for other purposes.

The next largest fund is the Severance Tax Permanent Fund (STPF). It was created in the very early 1970’s. Enacted by an act of the legislature, the Severance Tax Permanent Fund (STPF) was created through a constitutional amendment that was ratified by the people in 1976. The purpose of the fund was to conserve some of the income derived from the extraction of natural resources and being nonrenewable will be gone as revenue sources, insofar as future generations are concerned. There is a need to save for future generations rather than use it all for ourselves. Oil and gas are the principal and largest of our natural resources. These are huge contributors to severance taxes. Other significant contributors to the severance tax pool are copper mining ,along with molybdenum, potash, carbon dioxide (dry ice), uranium and gold. Royalties from oil and natural gas largely fund the LGPF and then their taxes fund the STPF.

Originally the fund was conceived to have one half of the taxes collected go to the permanent fund and one half to be held as the bonding fund. The severance Tax bonding fund is for use in servicing bond issues. Any money left over at the end of the year from the bonding fund would accrue to the corpus of the STPF.

A few years ago, Governor Anaya complained that there was insufficient money available in the budget to fund his projects. The money for the projects was spent anyway. Meanwhile Zuni Pueblo asserted that they were not allotted the same capital outlay money as other schools for infrastructure and other capital items. They sued the state and won. There were insufficient funds available to meet the court ordered remuneration for the Zuni Pueblo case for capital outlay money, it had all been committed.

The 50% division of revenue was broken. This was an emergency for the administration and the legislative body acted to divert tax money from the corpus of the STPF. In recent years there has been as little as $38.00 put from taxes to the corpus. Currently the STPF stands at $5 billion. In the 2018 Legislature a measure was passed to place 18.3% of severance tax revenue in the STPF, thus guaranteeing a steady inflow into the fund though not as big as the original 50%. Depending upon best figures available the STPF contributes about $240 million a year to the state’s general fund to benefit all citizens.

The tobacco Settlement Permanent Fund was created from money distributed by the US government as a settlement of tobacco companies in a suit against the tobacco companies. The New Mexico share was placed in a permanent fund to be used by the University of New Mexico for cancer research. Currently the fund has close to $247 million in assets. At one time there was an attempt to use part of the money for other uses, but it was denied.

Other attempts have been tried to divert monies from the permanent funds and in a 1952 case, i.e., Shepard v Mechem, the county of Colfax was forced to return funds diverted from the state Miner’s hospital. The court held that the land grant held by the hospital was for the hospital and no one else was to use that revenue source.

An estimate of the money contributed by the permanent funds to the budget for the state government use is equivalent to over $1,250 per year per household in personal taxes taken from their pocket. The citizen voters of New Mexico should jealously protect these funds and carefully weigh any proposal to use them.

 
 
 
Politicians and special interests drool at the sight and sound of the money in the state’s permanent funds. In every election cycle some candidate promises to use the permanent fund to do great things.
 
However, there are limitations, there are restrictions on how funds in these can be used and for good reason. These are not reserve funds or a rainy day funds. They are dedicated monies.
 
There are three Permanent Funds, the Land Grant Permanent Fund (LGPF), the Severance Tax Permanent Fund (STPF) and the Tobacco Settlement Permanent Fund (TSPF). The largest and oldest is the LGPF that was created by the Enabling Act when New Mexico became a state in the union. Two designated sections of land out of each township (sections 2 and 32) were dedicated to the state for the purpose of deriving revenue(9million surface acres and 13 million acres with mineral rights) to support for specific purposes of government operations and state institutions. Some 20 recipients were set for the funds with the largest portion for public education. Each of the parcels of grant land is tied directly to one of the 20 beneficiaries. These are not big bags of loose change to be dipped into for other purposes. Eighty-five per cent of the money goes to public education. The other beneficiaries receive the remaining 15 percent between them. The 19 other beneficiaries are universities, hospitals, and public buildings such as the capitol complex and special schools.
 
As of December , 2017 the public schools were receiving almost $49 million each month of dedicated funding that may not be used for anything else. There were almost $18 billion dollars in the LGPF along up until the Richardson administration needed money without raising taxes. The constitutional rate for withdrawal from the LGPF was at 4.7% at that time. But the governor needed more, so he had the legislature pass a Joint Resolution calling for an amendment to the New Mexico constitution that would allow the maximum annual withdrawal to go 5.8%. The legislature passed a Joint Resolution to increase the take out up to 5.8%.
 
The legislative approval of the Joint Resolution was sent to Washington to obtain congressional approval, then on to narrowly pass a people’s referendum approval. It passed by only 169 votes, thus amending the constitution to the new rate. As a part of the sales pitch to pass the amendment there was a sunset clause in the resolution so that after a time ( ca. 8 years) the fund’s rate for dispersing funds would drop back to 5% as it is now. The increase in the public school’s funding would be offset as a similar amount that would take from the general fund appropriation to the education allotment. There would be money for other projects. The 5% now in effect allows for a good rate of return and also to allow growth of the corpus of the fund. The LGPF has increased by nearly $5 billion in the past ten years. All of it dedicated and not available for other purposes.
 
The next largest fund is the Severance Tax Permanent Fund (STPF). It was created in the very early 1970’s. Enacted by an act of the legislature, the Severance Tax Permanent Fund (STPF) was created through a constitutional amendment that was ratified by the people in 1976. The purpose of the fund was to conserve some of the income derived from the extraction of natural resources and being nonrenewable will be gone as revenue sources, insofar as future generations are concerned. There is a need to save for future generations rather than use it all for ourselves. Oil and gas are the principal and largest of our natural resources. These are huge contributors to severance taxes. Other significant contributors to the severance tax pool are copper mining ,along with molybdenum, potash, carbon dioxide (dry ice), uranium and gold. Royalties from oil and natural gas largely fund the LGPF and then their taxes fund the STPF.
 
Originally the fund was conceived to have one half of the taxes collected go to the permanent fund and one half to be held as the bonding fund. The severance Tax bonding fund is for use in servicing bond issues. Any money left over at the end of the year from the bonding fund would accrue to the corpus of the STPF.
 
A few years ago, Governor Anaya complained that there was insufficient money available in the budget to fund his projects. The money for the projects was spent anyway. Meanwhile Zuni Pueblo asserted that they were not allotted the same capital outlay money as other schools for infrastructure and other capital items. They sued the state and won. There were insufficient funds available to meet the court ordered remuneration for the Zuni Pueblo case for capital outlay money, it had all been committed.
 
The 50% division of revenue was broken. This was an emergency for the administration and the legislative body acted to divert tax money from the corpus of the STPF. In recent years there has been as little as $38.00 put from taxes to the corpus. Currently the STPF stands at $5 billion. In the 2018 Legislature a measure was passed to place 18.3% of severance tax revenue in the STPF, thus guaranteeing a steady inflow into the fund though not as big as the original 50%. Depending upon best figures available the STPF contributes about $240 million a year to the state’s general fund to benefit all citizens.
 
The tobacco Settlement Permanent Fund was created from money distributed by the US government as a settlement of tobacco companies in a suit against the tobacco companies. The New Mexico share was placed in a permanent fund to be used by the University of New Mexico for cancer research. Currently the fund has close to $247 million in assets. At one time there was an attempt to use part of the money for other uses but it was denied.
 
Other attempts have been tried to divert monies from the permanent funds and in a 1952 case, i.e., Shepard v Mechem, the county of Colfax was forced to return funds diverted from the state Miner’s hospital. The court held that the land grant held by the hospital was for the hospital and no one else was to use that revenue source.
 
An estimate of the money contributed by the permanent funds to the budget for the state government use is equivalent to over $1,250 per year per household in personal taxes taken from their pocket. The citizen voters of New Mexico should jealously protect these funds and carefully weigh any proposal to use them.
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