A proposed New Mexico endowment fund for early childhood programs would get money in cash-flush years from state oil and natural gas tax dollars and federal mineral leasing revenue, the top budget official in Gov. Michelle Lujan Grisham’s office told the Journal.
Finance and Administration Secretary Olivia Padilla-Jackson said the proposed funding strategy would be a way to take advantage of the state’s current budget surplus while prudently managing its historic revenue swings.
“We’re still subject to a lot of volatility in our general fund,” Padilla-Jackson said.
Basically, the funding mechanism would call for a certain amount of energy-related tax collections to be diverted in years when total state cash reserves exceed 25% of spending levels.
If it had been in place for the current budget year, the plan would have funneled roughly $454 million into the proposed early childhood fund, according to a Department of Finance and Administration economist.
That’s because an ongoing oil drilling boom in southeastern New Mexico has driven revenue levels to much higher levels than previously projected, and the state’s cash reserves are now expected to hit nearly $2.3 billion – or about 32% of approved spending levels – by June 2020.
Sen. John Arthur Smith, D-Deming, the influential chairman of the Senate Finance Committee, said Thursday that lawmakers will scrutinize the funding proposal during next year’s 30-day legislative session.
“I think what they’re trying to do is accelerate the growth of the (fund),” Smith said.
However, he said, there are growing concerns that falling oil prices and a growing worldwide supply could lead to a slowdown in New Mexico oil production, which could stunt the state’s revenue growth.
Under the Lujan Grisham administration’s early childhood fund proposal, any oil and gas tax dollars and annual federal mineral leasing revenue gathered by the state in excess of a five-year rolling average of such tax collections would go into the early childhood fund.
But that fund transfer would be triggered only if cash reserve levels hit the 25% threshold.
The plan, which would take effect for the budget year starting next July, could, of course, mean less money would be available for other state programs in years featuring large budget surpluses.
It could also affect a state rainy day fund – enacted two years ago – that is also funded by higher-than-average oil and gas tax collections and has grown rapidly due to the oil drilling bonanza.
There was an estimated $968 million set aside in the rainy day fund, technically known as the tax stabilization reserve fund, at the end of the 2019 budget year, according to state and legislative economists.
The idea of a new early childhood endowment fund was first aired by Padilla-Jackson during a legislative hearing in August. At the time, she said roughly $50 million could be generated annually for programs such as early education, home visits and child-care assistance.
The proposal would require legislative approval, and its details are subject to change. But it would not need to be enshrined in the state Constitution – as are the state’s other permanent funds.
It could also represent a way to get around a long-running political debate, as past efforts to take more money from New Mexico’s already-existing Land Grand Permanent Fund – currently valued at $18 billion – for early childhood programs have ended up stuck in political quicksand in the state Senate.
That includes a measure that stalled during this year’s 60-day legislative session despite testimony from Lujan Grisham staffers and the first-term Democratic governor herself.
If approved, the new early childhood fund would be invested and managed by the State Investment Council, which already oversees the state’s other permanent funds.