Should New Mexico “Save” its Surplus (or reform its economy)?

Two of Gov. Lujan Grisham’s top lieutenants make the case in Sunday’s Albuquerque Journal for “saving” a healthy chunk of New Mexico’s oil and gas windfall. This post is going to discuss the issue and the pros and cons of the policy.

The recommendation is to dedicate money to both the State reserve fund (truly a “rainy day” fund) and a new, revenue-generating early childhood education trust fund. Based on our assumptions about what will actually happen in the 2020 session, building the rainy day fund is likely the best of a bad set of alternatives (more spending). Given the lack of willingness in the Legislature for tax reform or cuts, it would appear that simply deferring spending in the form of a rainy day fund would be worthwhile.

The same cannot be said for the new “early childhood” permanent fund. Because this fund is going to be dedicated to future wasteful spending, it is no better (or worse) than simply spending the money now.  More importantly, the new fund will have its own financial demands with needed sources of revenue and the obvious impetus for additional spending on wasteful early childhood programs (mostly pre-K as that is the most costly intervention).

Finally, it must be stated clearly that governments are not the same as individuals when it comes to saving money. For individuals, saving is inherently a good thing. We work for a limited period of time and then plan to retire on those (invested) savings.  While New Mexico’s “rainy day fund” attempts to even out future cash flows, the State of New Mexico and its residents would be better off if the State “invested” some of its money in good times in reforming its tax code and making New Mexico a more economically-diversified and attractive State for investment and living.


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