It is no secret that the State Investment Council is in serious need of greater reform and oversight. Whether the issue is the widely reported millions in fees investment companies paid to third-party marketer Marc Correra or the lack of transparency in the SIC’s decision-making process, the question is not whether the council needs to be reformed, but how broad and deep those reforms must be.
The special session that Gov. Bill 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 proposal introduced during the last legislative session, which would have removed the Executive Branch’s iron grip over the SIC, was introduced by Sen. Steven P. Neville R-Farmington. The bill passed both Houses with bipartisan 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 be the end. 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 (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 larger pools of money managed by any state government 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 focus its efforts and get back to successful investing basics.
After all, the SIC lost 19 million taxpayer dollars when Eclipse Aviation went bankrupt, and as the Rio Grande Foundation has pointed out, several of the local companies blessed by the SIC, like Earthstone ($9 million) and the Small Smiles dental clinic ($500,000), have been poor investments and have done little or nothing to create jobs.
Rather than favoring 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.
Last, 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, 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 given 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 the $14 billion contained in these funds rather than “investing” in more costly and unnecessary failures like Eclipse.
Paul Gessing is president of the Rio Grande Foundation, an independent, nonpartisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.