What is the State Investment Council (SIC)? The NM SIC is a professional organization that manages the investments for NM’s permanent funds which are currently valued at $23.6 billion. In addition, the SIC manages the investments for 20 NM governmental entities which are valued at $1 billion. The SIC began operating in January 1959.
What is a fiduciary? A fiduciary is a trustee, bound by legal and ethical responsibility to manage a trust’s assets, while acting solely in the best interest’s of the trust’s beneficiaries, regardless of any personal interests or considerations. The SIC is the “fiduciary” for its client – the State of NM and its citizens.
How is the SIC organized? In 2010, the SIC established working committees to serve the needs of the council. There are three committees: Investment Committee, Audit Committee, and the Governance Committee.
What is the SIC’s purpose? It is to optimize the earnings of the permanent funds that contribute to the state’s operating budget while preserving the real value of the funds for future generations of New Mexicans. Some of their important highlights include:
- Annually, the permanent funds provide a significant portion of the state budget, the majority of which is dedicated to public education. In fiscal year (FY) 19, they will provide $968 million to the general fund and beneficiaries (total equivalent of 15% of the state budget).
- The value of the funds has grown by 45% – over $6.5 billion – in the last five years while also providing nearly $4 billion to the state.
- Fund investments earned an average of over the past five years.
- As the value of the funds increase, the amounts they contribute to the state budget increase.
- On average, the permanent funds save each NM household about $1,270 in taxes every year.
The permanent funds are something for which all New Mexicans can be thankful because not only do they provide income for the state’s expenses but they also save taxpayer’s money.
What is a Sovereign Wealth Fund?
NM’s permanent funds are also Sovereign Wealth Funds (SWF). A sovereign wealth fund is a permanent fund owned by and managed exclusively for a sovereign entity, such as the State of New Mexico.
Characteristics of this fund are:
- Independence from other state financial or political institutions
- Governance and management by fiduciaries.
- Receipts generated by commodity leases, sales or taxes (typically oil and gas)
- Achievement of desired financial objectives through long-term investments.
- Investment of diverse asset classes.
- Savings to fund government services and ensure equity for future citizens.
- Stabilize the NM budget
- Income for public education, specialty schools, state universities, public hospitals, water infrastructure, public buildings, and prisons.
More on Sovereign Wealth Funds:
- These funds generally consist of government money set aside for investment purposes to benefit its economy and citizens.
- Norway has the largest SWF in the world worth $1 trillion. Alaska has the largest SWF in the U.S. with approximately $60 billion and New Mexico’s SWF ranks third with $23.6 billion funds.
- NM has four permanent or SWF funds. They are:
- The Land Grant Permanent Fund (LGPF)
- The Severance Tax Permanent Fund (STPF)
- The Tobacco Settlement Permanent Fund (TSPF)
- The Water Trust Fund (WTF)
- NM’s two primary sovereign wealth funds are the LGPF and the STPF. These funds are derived from royalties collected from minerals on public lands and severance taxes collected on oil, natural gas, coal, and other minerals extracted in the state.
- By investing a portion of this revenue to generate financial returns, NM has transformed a volatile, finite revenue stream into a permanent income-producing asset.
- Established in 1973, the STPF distributes millions annually to the state general fund from money not required for annual bond maintenance. It does not receive consistent contributions to sufficiently offset what it pays out. It depends on the amount of severance taxes collected by NM. In 1983 a constitutional amendment removed legislative authority to draw directly from this fund. A severance tax is charged on all minerals mined in the state.
- The TSPF was created in 2000 as part of a settlement between tobacco companies and several states. It is considered a “reserve” funds and lacks constitutional protection from legislative appropriation. Its earning are reinvested; it does not make annual distributions. Almost all of the fund has been diverted by the NM state legislature for other priorities. NM originally received $769 million but the fund is now valued at $156 million.
- The WTF was created with appropriations of $40 million in 2006 and another $15 million in 2007. Since then, it is required to distribute $4 million annually to the state’s Water Trust Board to fund critical water infrastructure projects around the state. It will likely shrink to zero within the next 20 years without a new revenue source.
Important Points to Remember:
- The permanent funds are the source for the state employee (PERA) and teacher (ERB) retirement/pensions. Raiding these funds will hurt the ability of NM to fund these programs.
- The SIC recommends that the amount withdrawn from the permanent funds should never exceed 5% of the funds if these funds are to be available for the future. The national average for withdrawal is 4.4%.
- No Governor has the authority to raid these funds. The percentage withdrawn can only by changed by a Constitutional Amendment passed by a majority in both houses of the NM legislature and approved by voters.
- If the permanent funds are raided or squandered away, all New Mexicans will see a tax increase of at least $1,200 a year.
- When NM exhausts its natural resources, the permanent funds and the rainy day fund established by Representative Larry Larranaga will provide a critical revenue source for this state.
The above information was provided by the NM SIC. The SIC has an excellent website at: www.sic.state.nm.us. The NM SIC address is 41 Plaza la Prensa, Santa Fe, NM 87507. Their phone number is (505) 476-9500.