New Mexico Land Grant Fund Investments, Amendment 5 (2014)

Amendment 5 Origin New Mexico Legislature Topic State and local government budgets, spending and finance on the ballot Status Approved a

2014 measures November 4 Amendment 1 d Amendment 2 a Amendment 3 a Amendment 4 a Amendment 5 a Bond Question A a Bond Question B a Bond Question C a Polls Local measures

The New Mexico Land Grant Fund Investments, Amendment 5 was on the November 4, 2014 ballot in New Mexico as a legislatively referred constitutional amendment, where it was approved. The measure affected the Land Grant Permanent Fund. Specifically, the amendment was designed to do three things:

• Allow more than 15 percent of the fund to be invested in international securities.
• Provide for the investment and management of the fund in accordance with the Uniform Prudent Investor Act.
• Raise the reserve required to be maintained in the fund from $5.8 billion to $10 billion.

The proposed amendment was sponsored in the New Mexico Legislature by Rep. Antonio Maestas (D-16) and Sen. Tim Keller (D-17) as House Joint Resolution 16.

Election results

Below are the official, certified election results:

New Mexico Amendment 5
Result		Votes	Percentage
a Yes		186,710	52.20%
No		170,991	47.80%

Election results via: New Mexico Secretary of State

Text of measure

Constitutional changes

See also: Article XII, New Mexico Constitution

The measure amended Section 7 of Article XII of the Constitution of New Mexico.

Note: Hover over the text and scroll to see the full text.

Section 7

A. As used in this section, "fund" means the permanent school fund described in Article 12, Section 2 of this [article] constitution and all other permanent funds derived from lands granted or confirmed to the state by the act of congress of June 20, 1910, entitled "An act to enable the people of New Mexico to form a constitution and state government and be admitted into the union on an equal footing with the original states.".

B. The fund shall be invested by the state investment officer in accordance with policy regulations promulgated by the state investment council.

C. In making investments, the state investment officer, under the supervision of the state investment council, shall [exercise the judgment and care under the circumstances then prevailing that businessmen of ordinary prudence, discretion and intelligence exercise in the management of their own affairs not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital] invest and manage the fund in accordance with the Uniform Prudent Investor Act.

D. The legislature may establish criteria for investing the fund if the criteria are enacted by a three-fourths' vote of the members elected to each house, but investment of the fund is subject to the following restrictions:

(1) not more than sixty-five percent of the book value of the fund shall be invested at any given time in corporate stocks;

(2) not more than ten percent of the voting stock of a corporation shall be held; and

(3) stocks eligible for purchase shall be restricted to those stocks of businesses listed upon a national stock exchange or included in a nationally recognized list of stocks [and

(4) not more than fifteen percent of the book value of the fund may be invested in international securities at any single time].

E. All additions to the fund and all earnings, including interest, dividends and capital gains from investment of the fund shall be credited to the fund.

F. Except as provided in Subsection G of this section, the annual distributions from the fund shall be five percent of the average of the year-end market values of the fund for the immediately preceding five calendar years.

G. In addition to the annual distribution made pursuant to Subsection F of this section, unless suspended pursuant to Subsection H of this section, an additional annual distribution shall be made pursuant to the following schedule; provided that no distribution shall be made pursuant to the provisions of this subsection in any fiscal year if the average of the year- end market values of the fund for the immediately preceding five calendar years is less than [five billion eight hundred million dollars ($5,800,000,000)] ten billion dollars ($10,000,000,000):

(1) in fiscal years 2005 through 2012, an amount equal to eight-tenths percent of the average of the year-end market values of the fund for the immediately preceding five calendar years; provided that any additional distribution from the permanent school fund pursuant to this paragraph shall be used to implement and maintain educational reforms as provided by law; and

(2) in fiscal years 2013 through 2016, an amount equal to one-half percent of the average of the year-end market values of the fund for the immediately preceding five calendar years; provided that any additional distribution from the permanent school fund pursuant to this paragraph shall be used to implement and maintain educational reforms as provided by law.

H. The legislature, by a three-fifths' vote of the members elected to each house, may suspend any additional distribution provided for in Subsection G of this section.

Support

Supporters

• Greater Albuquerque Chamber of Commerce
• Chartered Financial Analyst Society of New Mexico

Arguments

The New Mexico Legislative Council Service provided arguments for and against the constitutional amendment. The following were the council's arguments in support:

“	1. Balances short-term risk and long-term gain. The amendment would update investment standards to match best practices, placing an emphasis on diversifying investment of the Land Grant Permanent Fund. Diversification balances risks so that short-term swings in the market have less impact on an investment fund as a whole. Moreover, the newer standards would allow the State Investment Council to make some longer- term investments that are projected to give a high rate of return even if they are expected to have short-term fluctuations. This type of investment would help counterbalance inflation pressures on the Land Grant Permanent Fund. 2. Provides necessary portfolio diversification. Removing the limitation on foreign investment provides a tool to the State Investment Council that has been promoted as necessary to diversify investment portfolios and to earn higher returns on the investments. 3. Foreign investment component reflects modern business market. Since several large corporations operate and profit on a global basis, such as some soft drink manufacturers, fast food chains, computer hardware producers and financial service providers, arguably there is already a "foreign investment" component to many stocks listed on such domestic exchanges as the Dow Jones Industrial Average and the NASDAQ Stock Market. 4. Contains an additional safety measure. Raising the minimum reserve requirement for additional disbursements from the Land Grant Permanent Fund to $10 billion through fiscal year 2016 establishes a safety measure to insulate the fund in the short term while the State Investment Council explores greater diversity for investments from the fund.	”
—New Mexico Legislative Council Service

Other arguments in support of the amendment included:

• State Investment Council member Harold Lavender said, "This would remove a constitutional cap on foreign equity investments that have worked to our disadvantage over the last several years. It has cost us money."

Opposition

Arguments

The New Mexico Legislative Council Service provided arguments for and against the constitutional amendment. The following were the council's arguments against:

“	1. Encourages risky investments. Eliminating the 15 percent cap on foreign investments and adding the UPIA standard effectively encourages the State Investment Council to maximize returns at the risk of additional investment volatility. Such actions could jeopardize the value of the trust funds. 2. Foreign markets less stable than U.S. market. Many U.S. investors are cautious about making significant investments in foreign markets due to concerns about volatile political situations, insecure financial structures or a lack of business diversification in many countries. Currently and historically, the U.S. financial market, despite the inevitable recessions and market corrections, is the most stable market in the world. 3. Might erode fund value. As averaged over the past 25 years, the Land Grant Permanent Fund has earned an annual return on investment of 8.65 percent under current law — a more than respectable long-term rate of return. Changing the investment standards, and in particular removing the cap on foreign investments, could inject more volatility and risk and erode the value of the Land Grant Permanent Fund.	”
—New Mexico Legislative Council Service

Path to the ballot

See also: Amending the New Mexico Constitution

According to Article XIX of the New Mexico Constitution, a simple majority was required in the legislature to refer the amendment to the ballot. HJR 16 was approved in the New Mexico House and New Mexico Senate on February 20, 2014.

House vote

February 20, 2014 House vote

New Mexico HJR 16 House Vote
Result		Votes	Percentage
a Yes		65	100.00%
No		0	0.00%

Senate vote

February 20, 2014 Senate vote

New Mexico HJR 16 Senate Vote
Result		Votes	Percentage
a Yes		37	88.10%
No		5	11.90%

See also

Suggest a link

• 2014 ballot measures
• New Mexico 2014 ballot measures
• New Mexico Legislature

External links

• 2014 Proposed Constitutional Amendments
• House Joint Resolution 16