Pub. 16 2019 Issue 3

Issue 3 • 2019 3 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S In order for the NM banking community to continue to thrive in the future, we must continuously attract and retain new talent. The need for quality employees is so prominent that it is featured as a pillar of the NMBA’s Board of Director’s 2019 strategic plan through the implementation and expansion of meaningful internship programs. have already had three students contact me who are interested in participating. The Oil Lottery! With the recent estimates released by the United States Geological Survey identifying the largest continuous oil and gas resource potential ever, New Mexico has, for lack of a bet - ter term, hit the lottery. Due to the recent discovery of oil re - serves in the Permian Basin, the United States has reclaimed the title of the largest oil producer in the world. The last time the U.S. had that title was 1973. As a result, it is expected that New Mexico will have more than $1 billion of additional reve - nue for the fiscal year 2020. My advice to our Legislature and the Governor is, “Please Spend it Wisely.” There is no guaran - tee that these funds will be there in the future. We don’t want to end up like one-third of lottery winners who eventually declare bankruptcy due to irresponsible spending. Perhaps some things to consider, respectfully: • Shoring up the state’s two large public retirement sys- tems (PERA and ERA), which have sizable unfunded lia - bilities in the billions of dollars and have caused national credit rating agencies to express concern. We should also review the pension funds’ benefits structures. • Mental health services • Homeless services and housing • Highways and other infrastructure (especially in southeast New Mexico where the excess funds are being generated) • Control overspending on recurring expenses, such as new departments and programs which have an ongoing cost to the state. New Mexico is always at risk of an oil bust, and recurring expenses will have a very negative impact on the state as a whole if we experience a bust. • Leave the state’s permanent funds alone. The $18 billion land grant permanent fund is one of the largest government-owned investment funds in the country. The State Land Office deposits royalty revenue from the management of state trust land into the fund, and 5% of the value of the fund is distributed to trust land beneficiaries, with public schools receiving about 85% of the distributions. The $5.3 billion severance tax per - manent fund is the depository for the state severance taxes (assessed on the “severing” of natural resources from the land) that are not being used to repay capital outlay bonds. Unlike the land grant fund, the entire distribution (4.7%) of the value of the fund goes to the general fund. The size of these endowments has attracted proposals to increase draws from the funds. However, increasing the share of the funds that can be spent will reduce distributions in the long run, which will harm our schools. Because the funds are depen- dent on the oil and gas industry, they are subject to the same booms and busts. The value of the severance tax fund dropped following the oil market collapse in 2014, and the combined value of the funds fell by nearly 30% in the year following the Great Recession. Do not bite the hand that feeds you. Let’s look at the indus - tries that are paying for the state’s services and treat them fairly. For example, more than a third of the state’s revenue is dependent on oil and gas, and that number is growing. Some estimate that the number may increase to 50% soon. New Mexico is incredibly fortunate to have these excess funds, and we have a responsibility to be wise in our decisions about how we allocate them. n