In 1996 the New Mexico voters approved a constitutional amendment loosening standards for investment of the State Permanent Fund. The Legislature wanted to put more money in stocks, particularly NASDAQ.

In the next three years the fund went from $5.5 billion to nearly $8 billion. Then the Internet bubble burst three years ago and the fund started losing.A year ago it was down to $6.7 billion.
These total market values were only fiscal-year-end paper values, but they show the state’s century-old trust fund for schools was a loser two years in a row — a minus 6.6 per cent total return in fiscal 2001, a minus 7.9 per cent in 2002. The numbers for fiscal year 2003 aren’t in yet, but Gov. Bill Richardson jumped the gun last week to announce that the fund is up to about $7 billion, with a probable positive return for the fiscal year at about 6.4 per cent. Why was this important?

The governor, the Legislature and lately U.S. Sen. Pete Domenici, R-N.M., want the voters to approve another constitutional amendment affecting the Permanent Fund, 83 per cent of which is dedicated to support of the public schools. The amendment in the special election on Sept. 23 would increase the annual distribution from the fund in order to avoid a tax increase to pay for the new teacher salary schedule. That’s a no brainer for most taxpayers.

But there are some cranky oldtimers who say, wait a minute. Not so fast there. If the fund keeps having below-average returns you can dissipate the fund. As one old expert reminded me, it’s like a retired couple living off their savings instead of the earnings on their savings. They can wind up with nothing. There are various ways to do the math. What’s amazing is that the proponents of the amendment have avoided it or done it wrong.
The proponents of the constitutional amendment to increase spending of the permanent fund keep making a fundamental error. They say, as Rep. Mimi Stewart did in a recent op-ed piece, that the amendment increases the spending from 4.7 per cent to 5 per cent for a year and then 5.8 per cent for eight years. But they say this is a percentage of the five year average earnings. They are wrong. The amendment says, clearly, the percentage is of the five-year average total market value. This is not a negligible error. It is the difference between $350 million and $7 billion.

Stewart, an Albuquerque Public Schools teacher, acknowledged the error. But she told me, “I think people ought to think about it in the bigger picture.” Her picture is teachers leaving the state if they don’t get more money. Her picture is why raise taxes to keep them when we can spend just another $80 million or so from a huge pool.

Looked at another way, however, increasing the spending from 4.7 per cent to 5.8 per cent is a 23 per cent increase. How does it work out over eight years? What the voters need is an objective outside investment adviser. But don’t count on getting one. The supporters of the Permanent Fund amendment include a lot of teachers. It would be nice if some of them were math teachers.