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It is no secret New Mexico’s State Investment Council (SIC) is in serious need of greater reform and oversight. Whether the issue is the widely-reported and greatly-inflated fees paid to third-party marketer Marc Correra or the lack of transparency in its decision making process, the issue is not whether the council needs to be reformed, but how broad and deep those reforms must be.
The special session that Gov. Richardson plans to call later this summer – in addition to distributing federal stimulus funds and revisiting the budget – should be used to revive efforts to reform the SIC.
One reform effort introduced during the last legislative session, which would have removed the Executive Branch’s iron grip over the SIC, was introduced by Sen. Neville of Farmington.
The bill passed both Houses with bi-partisan support only to be vetoed by the governor.
Reviving this legislation and removing the SIC from the control of one politician would be a start, but it should by no means end the reforms made to the SIC. The amount of money managed by the SIC is simply too great to be managed by an appointed board operating with a broad mission and little public oversight.
The SIC controls the massive Land Grant Permanent Fund, which is valued at $10 billion or so, and the Severance Tax Permanent Fund ($4 billion or so). In addition, the SIC controls the smaller Tobacco Settlement and Water Trust Permanent Funds.
These are some of the largest pools of money managed by any state government in the nation and are particularly large given the relatively small size of New Mexico’s economy.
Historically, the SIC’s mission was to generate a reasonable rate of return on its investments. The SIC should return to that basic mission by tightening rules that were loosened in 2003 to allow more investment of our permanent fund money in private companies and hedge funds to promote the goal of job creation in New Mexico.
Limiting the scope of the SIC’s mission will help it focus its efforts and get back to successful investing basics.
After all, the SIC lost taxpayers $19 million when Eclipse Aviation went bankrupt, and as the Rio Grande Foundation has pointed out, several of the SIC’s investments like Earthstone ($9 million) and the Small Smiles dental clinic ($500,000), have been both poor investments and done little or nothing to create jobs.
Rather than allowing the SIC to favor certain businesses by investing millions of dollars of taxpayers’ money in them, generating solid returns for taxpayers is an important enough role for the SIC. Such a move would have the additional benefit of eliminating the opportunities for some of the well-publicized abuses that have taken place.
Lastly, in what might seem like a more radical step, we as New Mexicans should at least consider returning a portion of the Severance and Land Grant funds to the citizens of New Mexico. It is, after all, our money; do we really need the government to hold more than $14 billion of it?
Such a role might be expected if we view government as a parent or guardian who manages an inheritance for a child until he or she turns 18, but New Mexicans are adults.
In Alaska, the state’s permanent fund distributes a dividend to residents of the state. This means that individuals, not bureaucrats and politicians, control how the money is invested. Better still, such a system gives Alaskans – and could give New Mexicans – a stake in managing their mineral wealth and profiting from it.
In New Mexico, unfortunately, if you live in Albuquerque or Santa Fe and don’t travel around the state much, you might not understand just how dependant the New Mexico economy really is on its mining and resource extraction industries.
Receiving a check every year for your share of the profits would give New Mexicans an added interest in preserving the economic viability of these industries.
The SIC needs to be reformed and soon. We need to get the most out of the14 billion dollars contained in these funds rather than “investing” in more costly and unnecessary failures like Eclipse.
Paul Gessing is the President of New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.