Dem Gov Candidate Michelle Lujan Grisham Would Put New Mexico On Track For Higher Taxes, Fiscal Instability

New Mexico Democrat gubernatorial candidate Michelle Lujan Grisham claims that her proposals will “jumpstart” New Mexico’s economy, but in reality her fiscally irresponsible policies would put the state on track to fiscal crisis and higher taxes. In her recently released plan, Lujan Grisham proposes increasing disbursements for New Mexico’s Severance Tax Permanent Fund (STPF) by nearly $200 million, even after warnings about the potential consequences of such an increase.

In August, the Albuquerque Journal editorial board called proposals raising permanent fund disbursements similar to Lujan Grisham’s “worrisome,” warning that should permanent funds like the STPF go bust, New Mexico taxpayers would be forced to pay roughly “$1,100 more annually to keep things running.” And last year, State Investment Commission member Harold Lavender noted that the state takes great care to ensure the funds’ stability even giving up “some gains from stock markets during upturns in order to protect the funds in downturns.”

By draining the STPF, Lujan Grisham would put New Mexico on the road to higher taxes for middle class families and fiscal instability. She clearly lacks the judgement to serve as New Mexico’s next chief executive. Lujan Grisham’s recycled policies prove that is she is committed to failed partisan ideas, not innovative solutions that will move New Mexico forward.

BACKGROUND:

In 2017, Michelle Lujan Grisham outlined a plan to increase the Severance Tax Permanent Fund disbursement by nearly $200 million. Michelle Lujan Grisham via Medium, Oct. 17, 2017: “4. Invest in New Mexico Businesses Invest the full 9% currently allowed from the Severance Tax Permanent Fund to help businesses grow. Nearly $200 million would be available for direct investment. Leverage those investments to bring in an additional $2.4 billion into the state’s economy. Double the NM Small Business Investment Corporation (SBIC) program to a 2.0% allocation of the Severance Tax Permanent Fund, making $50 million more available to strong, growing small business that banks are not serving.” (“Jumpstart New Mexico,” Michelle Lujan Grisham via Medium, Oct. 17, 2017)

New Mexico’s Severance Tax Permanent Fund receives its funding from taxes that originate from oil, gas and other natural resources as they were taken (severed) from the state. “The Severance Tax Permanent Fund (STPF) was created by the New Mexico Legislature in 1973, as a way to save and invest the severance taxes not being used that year to bond capital projects.  The taxes originate from oil, gas and other natural resources as they were taken (severed) from the state. ( “Severance Tax Permanent Fund,” New Mexico State Investment Council, Accessed Aug. 24, 2017)

Severance tax revenues are first applied to pay the required debt service on Severance Tax Bonds issued by the State. Remaining severance tax revenues are then transferred to the Investment Office, which adds these amounts to the STPF. “The State of New Mexico levies a severance tax on certain natural resources extracted from land within the State. Severance tax revenues are first applied to pay the required debt service on Severance Tax Bonds issued by the State. Remaining severance tax revenues are then transferred to the Investment Office, which adds these amounts to the STPF. Other State agencies are responsible for administering the severance tax and determining the amounts required to service the outstanding Severance Tax Bonds. The current annual distributions equal four and seven-tenths percent (4.7%) of the average of the year-end market values of the fund for the immediately preceding five years.” ( “FY2016 Annual Audit Report,” New Mexico State Investment Council, June 30, 2016, Pg. 25)

The fund currently pays out 4.7 percent of the average of the year-end market values of the fund for the immediately preceding five years. “The State of New Mexico levies a severance tax on certain natural resources extracted from land within the State. Severance tax revenues are first applied to pay the required debt service on Severance Tax Bonds issued by the State. Remaining severance tax revenues are then transferred to the Investment Office, which adds these amounts to the STPF. Other State agencies are responsible for administering the severance tax and determining the amounts required to service the outstanding Severance Tax Bonds. The current annual distributions equal four and seven-tenths percent (4.7%) of the average of the year-end market values of the fund for the immediately preceding five years.” ( “FY2016 Annual Audit Report,” New Mexico State Investment Council, June 30, 2016, Pg. 25)

In FY2018, the Severance Tax Permanent Fund increased its value by $372,444,980 and will pay out $210,377,644 in distributions

(Press Release, “Strong Investment Returns Drive New Mexico Permanent Funds to Record $22.3 Billion,” New Mexico State Investment Council, Aug. 11, 2017)

But between 2014 and 2016, the Severance fund disbursed $546,705,569 and only received $138,444,120 in contributions

( “FY2016 Annual Audit Report,” New Mexico State Investment Council, June 30, 2016, Pg. 25)

According to the New Mexico State Investment Council, each household saves about $1,175 in taxes each year due to the combined permanent funds distributions. “The combined distributions from the Land Grant and Severance Tax Permanent funds will deliver a record $899.6 million to beneficiaries and the state’s General Fund for the current fiscal year 2018, a year-over-year increase of more than $61 million, and three times what the funds were producing for New Mexico just 20 years ago. Those benefits, the majority of which go to New Mexico public schools, are the equivalent of an estimated $1,175 in tax savings for every household in the state.” (Press Release, “Strong Investment Returns Drive New Mexico Permanent Funds to Record $22.3 Billion,” New Mexico State Investment Council, Aug. 11, 2017)

In 2017, the editorial board of the Albuquerque Journal claimed it is “worrisome” that activists and legislators lobby for increased spending from the Land Grant and Severance Tax Permanent Funds. “But what’s worrisome are the community activists and legislators who will undoubtedly start lobbying early and often to spend more of the $22.3 billion in the Land Grant Permanent Fund and the Severance Tax Permanent Fund to meet what they label ‘critical’ needs throughout the state. They have for years. But history, and this impressive increase in revenues, show exactly why such temptation needs to be overcome.” (Editorial, “Permanent funds’ growth shouldn’t inspire raids,” Albuquerque Journal, Aug. 19, 2017)

In 2016, New Mexico State Investment Commission member Harold Lavender said that the funds have “given up some gains from stock markets during upturns in order to protect the funds in downturns like we’re seeing now.” “With production declines on the horizon, the state funds face prolonged pain because, once output drops, it can take a long time to recover as prices slowly rebound,’ said SIC member Harold Lavender… We’ve given up some gains from stock markets during upturns in order to protect the funds in downturns like we’re seeing now,’ Lavender said. ‘That helps us keep the funds on an even keel over time…‘Diversification could shore up overall fund resilience in the current downturn…I believe we’re very well situated now,’ said council member Linda Eitzen. ‘It doesn’t mean we won’t see the value of the funds go down, but we can now buffer the amount it goes down.’” (Kevin Robinson-Avila, “NM permanent funds face rough patch,” Albuquerque Journal, Feb. 1, 2016)