Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance
committees of the Legislature. LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
F I S C A L I M P A C T R E P O R T
SPONSOR Campos
LAST UPDATED
ORIGINAL DATE 2/17/2025
SHORT TITLE Severance Tax Permanent Fund Investments
BILL
NUMBER Senate Bill 162
ANALYST Gray/Torres
REVENUE*
(dollars in thousands)
Type FY25 FY26 FY27 FY28 FY29
Recurring or
Nonrecurring
Fund
Affected
STPF
Interest
Earnings
No fiscal impact until FY2032 Recurring General Fund
Parentheses ( ) indicate revenue decreases.
*Amounts reflect most recent analysis of this legislation.
Sources of Information
LFC Files
Agency Analysis Received From
State Investment Council (SIC) Economic Development Department (EDD) Agency Analysis Received From
Taxation and Revenue Department (TRD) New Mexico Attorney General (NMAG)
SUMMARY
Synopsis of Senate Bill 162
Senate Bill 162 (SB162) changes the allocation of the severance tax permanent fund for certain
investments that do not maximize investment return from the current percentage allocation to a
dollar allocation. Specifically, the bill changes the amount the State Investment Council (SIC)
may allocate from the severance tax permanent fund to the New Mexico Private Equity
Investment Program (NMPEIP) from the current allowable allocation of 11 percent to $700
million.
The effective date of this bill is July 1, 2025
FISCAL IMPLICATIONS
The revenue impact considers the current size of the NMPEIP, the size of the severance tax Senate Bill 162 – Page 2
permanent fund, and the magnitude of commitments the SIC has made to date. Where applicable,
this analysis uses estimates from the December 2024 consensus revenue estimating group
forecast.
To estimate the revenue impact, this analysis first calculates the investment impact of NMPEIP.
This estimate assumes two-thirds of the difference between severance tax permanent fund
investment performance and land grant permanent fund investment performance are attributable
to NMPEIP. Under the bill, the magnitude of this impact decreases over time as NMPEIP
receives a fixed share ($700 million) of severance tax permanent fund assets. Because NMPEIP
investments have lower returns than other severance tax permanent fund investments, growth in
the size of the severance tax permanent fund will dilute the influence of lower-performing
NMPEIP investments on the overall return rate of severance tax permanent fund investments. As
a result, overall severance tax permanent fund investment performance is assumed to improve
and gradually approach that of the land grant permanent fund, increasing distributions from the
severance tax permanent fund to the general fund. General fund distributions under this scenario
are compared to current estimates for the annual general fund impact.
This analysis assumes SIC would have otherwise kept the NMPEIP allocation at its current level,
about 4.7 percent of the severance tax permanent fund. Under this assumption, the bill would
increase general fund revenue beginning in FY31 by about $5 million before growing to above
$100 million in FY38 and as high as $450 million in FY37. The estimated general fund revenue
impact compounds because SIC can invest severance tax receipts into higher performing
investments, which compound over time.
SIGNIFICANT ISSUES
NMPEIP supports private equity funds that make investments into New Mexico companies. The
program’s objective is to promote economic development. In August 2024, the value of the
severance tax permanent fund was $9.93 billion, and NMPEIP was valued at $467 million, or
approximately 4.7 percent of the overall fund. Over the last 10 years, the return of NMPEIP
investments has been negative, with the fund’s internal rate of return (IRR) at negative 1.2 Senate Bill 162 – Page 3
percent. Actual returns were negative 0.4 percent over that period, according to agency analysis.
The NMPEIP carries a dual mandate of producing general fund investment returns and
stimulating economic development. The program has not met the first prong of this mandate.
NMPEIP likely meets the second prong of its mandate to stimulate economic development, but
the program accomplishes this mandate at a high cost. SIC measures the economic impact of
NMPEIP with estimates of job growth, total payroll, and various other performance measures.
Between the first quarter of 2019 and the first quarter of 2024, the program is estimated to have
created 1,781 jobs for an average general fund cost per job of about $83 thousand, significantly
more expensive than other state economic development programs. Limiting the size of the
NMPEIP will ensure that state dollars are better allocated towards programs and investments
with higher returns.
Regarding its lagging performance, SIC notes the agency has restructured its investment
program, shifting away from a dedicated co-investment strategy to diversify its portfolio and
increase the number of managers and total companies. The agency notes it has hired a new
consultant and made a series of major investment “commitments” to fund managers, who will
make investments in New Mexico start-ups. These commitments will be drawn down over a
period of five years. The agency writes, “These are long-term commitments that, while
promising and well-considered at this time, will take several years to prove successful or not.”
The agency asserts that capping commitments would have negative impacts on future and
existing commitments the NMPEIP has made in support of New Mexico businesses and fund
managers. The agency writes: “From SIC’s perspective, this bill is seeking to solve a problem
that the council has already been actively working to address for the past several years, and
which could take additional years to firmly evaluate for success or failure.”
Constitutional Concerns. In its analysis of the bill, SIC notes potential constitutional
limitations on the Legislature’s ability to interfere with existing contractual obligations. Senate Bill 162 – Page 4
Specifically, the agency cites Article II, Section 19, of the New Mexico Constitution, which
provides “no ex post law, bill of attainder nor law impairing the obligation of contracts shall be
enacted by the Legislature.” The agency asserts the bill impairs its existing contractual
obligations and financial commitments over the last several years, which, according to the
agency, total $774 million.
Article II, Section 19, of the New Mexico Constitution has been subject to extensive review by
the courts specifying the extent of its provisions. The state Supreme Court in Temple Baptist
Church, Inc. v. City of Albuquerque (1982-NMSC-055, ¶ 44, 98 N.M. 138, 147, 646 P.2d 565,
574) citing Green v. Town of Gallup, (46 N.M. 71, 120 P.2d 619 (1941)), stated, “Existing
contracts are subject to the legitimate exercise of police power.” Temple Baptist Church and
Green suggest that if legislative action is reasonably related to the benefit of public health,
convenience, safety, or general welfare, the action passes constitutional muster. How the
proposed amendment to 7-27-5.15 benefits the public is not articulated or self-evident.
Analysis of the bill by the Office of the Attorney General (NMAG) has not yet been received,
and the analysis could be updated. SIC states there may be “some other creative legal solutions
that could be explored." It is unclear what those may be. However, this issue appears to be at the
boundary of the constitutional separation of power between the Legislature’s legitimate
appropriation authority and the agency’s legitimate executive authorities.
TECHNICAL ISSUES
The agency notes the provision striking “In addition to the investments required by subsections F
and G of this section” (see page 1, lines 20&21, see page 5, lines 17&18, and page 6 lines 1&12)
may be interpreted as providing a $700 million cap on all economically targeted investments in
aggregate, which was not the intention of the legislation.
Attachment:
October 2024 LFC Report SIC Investments Performance Spotlight
BG/IT/SL2/sgs
SIC Investments Performance Spotlight | October 23, 2024 1
SIC Investments Performance Spotlight
The three large long-term investment funds managed by the State Investment
Council (SIC) grew by $24.2 billion, or 101.6 percent, over the last five years
ending in the fourth quarter of FY24. This period of rapid growth for the state’s
three largest long-term investment funds—the land grant permanent fund
(LGPF), the severance tax permanent fund (STPF), and the early childhood
education and care fund (ECTF)—has been propelled by excess oil and gas
revenues, accounting for 53.8 percent of the funds’ five-year growth. Total
assets managed by SIC were $57.8 billion in August, more than double what
they were five years ago. The number of funds managed by the agency
increased from five in 2019 to 12 in August 2024. Over that period, the
agency’s total budget has grown by 18.9 percent.
A persistent performance challenge is low returns of the STPF. Performance
of the STPF is important because it is the primary fund the state relies on to
overcome future declining oil and gas revenues. In the most recent quarter,
STPF recorded a one-year return of 6.87 percent while LGPF’s return was 8.47
percent over that period. This continues a yearslong trend, where STPF returns
have been below the LGPF for the last five fiscal years. This performance gap
is estimated to cost the general fund $160 million over the next 10 years and
grow in the future, with billions in lost balances.
These low returns are the result of differential rate investments into the New
Mexico Private Equity Investment Program (NMPEIP)–a legislatively created
program that directs a portion of the STPF to New Mexico companies–the
Small Business Investment Corporation (SBIC)–which offers loans and makes
investments into small businesses in the state–and the small business recovery
loan program, designed to offer low-interest loans to businesses that
experienced financial hardship early in the pandemic. The in-state private
equity program is the largest of these differential rate investments.
Key Points
• The market value of the NMPEIP was $454.3 million in July, making it
the largest state program designed to create jobs and support businesses.
• The in-state private equity program’s internal rate of return (IRR)—a
measure of an investment’s profitability—was negative 5.5 percent in the
five-year period ending 2023. In contrast, private equity investments in
national businesses (excluding New Mexico) had an IRR of 15.7 percent
over that period.
• The unfavorable returns of the New Mexico private equity program drag
overall STPF performance. Among large national public funds over the
three-year period, the LGPF was among the best performing, coming in
the top 20
th
percentile in FY24. In contrast, the STPF was in the bottom
70
th
percentile.
• By FY50, the performance gap—if it persists–will cost the STPF $11
billion compared to what the fund value would be if it returns matched the
LGPF’s performance.
0%
2%
4%
6%
8%
10%
12%
14%
Qtr1 Qtr3 Qtr1 Qtr3 Qtr2 Qtr4 Qtr2 Qtr4 Qtr2 Qtr4 Qtr2
201920202021202220232024
Historical Three-Year
Annualized Returns
(calendar year)
LGPF STPF
Source: SIC
Money Matters
Analysis by the LFC Economists
THIS REPORT details
investment performance of the
State Investment Council (SIC).
Prepared By: Brendon Gray
Returns of SIC-managed
Funds
(1-year returns as of 7/31/24)
Fund Returns
Conservation Legacy 10.35
Early Childhood 9.16
Land Grant 8.30
Rural Libraries 7.40
Tobacco Settlement 6.96
Severance Tax 6.85
Tax Stabilization 4.05
Source: SIC
2 SIC Investments Performance Spotlight | October 23, 2024
Performance Gap Between STPF and LGPF
One-year STPF returns have lagged the LGPF by an average of 3.2 percentage
points over the last five fiscal years. The gap was similar over returns with a
longer time horizon. STPF’s five-year average returns were the worst among
New Mexico’s large investment funds in each quarter since FY22 and have
averaged 1.1 percentage points below the LGPF five-year average returns.
Asset Allocation
Performance differences between LGPF and STPF result from their asset
allocation. Both funds share a similar asset allocation, with about 30 percent
each allocated to three investment classes—public equity, fixed income, and
alternative investments—and the rest held as cash. However, the major
difference between the STPF and the LGPF is the differential rate investment
to the in-state private equity program. The council currently allocates about 4
percent of the STPF to the program, but it has set an interim target allocation
of 6 percent. The Legislature has authorized the council to invest up to 11
percent of the STPF. In addition to the in-state private equity program, SIC is
required to allocate 2 percent of the STPF to the New Mexico Small Business
Investment Corporation (NMSBIC), which also acts as a drag on STPF
performance.
Impacts of Performance Gap
The cumulative impact of the STPF-LGPF performance gap is large. By FY50,
the balance of the STPF is expected to be $11 billion lower than it would have
been had it matched LGPF performance. By FY50, this will translate to about
$370 million a year in foregone general fund revenue because STPF distributes
4.7 percent of its five-year average fund value to the general fund.
The opportunity costs of the in-state private equity program are large because
the STPF is expected to grow rapidly. Historically, the fund grew around 5
percent annually; in the next 10 years, it’s expected to grow at three times that
rate due to new distributions to the fund. Because the in-state private equity
program is authorized to make up a share of the STPF, the program could grow
at that same rate and losses could proliferate without legislative changes.
Benefits
SIC measures the economic impact of the in-state private equity program with
estimates of job growth, total payroll, and various other performance
measures. Between the first quarter of 2019 and the first quarter of 2024, the
program is estimated to have created 1,781 jobs for an average general fund
cost per job of about $83 thousand. This general fund cost per job is nearly
seven times higher than the average cost per job of LEDA and eight times
higher than the average cost per job of JTIP, some of the state’s largest direct
job creation programs.
1
1
This analysis estimates the cost per job by dividing the estimated general fund cost
by the total number of jobs created. General fund cost was estimated by projecting
general fund revenue foregone because money was allocated to the NMPEIP instead
of the STPF, which makes general fund distributions.
LGPF and STPF Asset
Allocation and 1-Year Returns
(as of 6/30/2024)
LGPF
Allocation
(returns)
STPF
Allocation
(returns)
US Equity
19%
(24%)
18%
(23%)
International Equity
16%
(11%)
19%
(11%)
Fixed Income
32%
(6%)
28%
(6%)
Alternatives
Private Equity
10%
(5%)
4%
(5%)
NM Private
Equity*
0%
(NA)
4%
(-7%)
Real Estate
7%
(-9%)
8%
(-9%)
Real Assets
7%
(10%)
8%
(10%)
ETI
0%
(NA)
3%
(-5%)
Cash
8%
(5%)
8%
(5%)
*Returns for the NM Private Equity Program are
5-year annualized returns. Shorter periods can be
highly volatile.
Source: SIC RVK Performance Review
$10,000
$12,000
$23,000
$83,000
JTIP
LEDA
Film Tax
Credit
NMPEIP
5-Year Average General
Fund Cost per Job
Created
Source: LFC analysis