A. As used in this section, ‘‘fund’’ means the permanent school fund described in Article 12, Section 2 of this 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 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.
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 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 yearend 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. (As amended November 4, 1958, September 28, 1965, November 6, 1990, November 5, 1996, September 23, 2003, and November 4, 2014.)
Effect of amendments.
The 2003 amendment, which was proposed by S.J.R. 8 (Laws 2003) and adopted at the special election of September 23, 2003 by a vote of 92,198 for and 92,003 against, added the exception at the beginning of Subsection F, substituted “shall be five percent” for “shall be one hundred two percent of the amount distributed in the immediately preceding fiscal year until the annual distribution equal four and seven-tenths percent of the average of the year-end market values of the fund for the immediately preceding five calendar years. Thereafter, the amount of the distribution shall be four and seven-tenths percent” in Subsection F, and added Subsections G and H.
The 2014 amendment , which was proposed by H.J.R. No. 16 (Laws 2014) and adopted at the general election held on November 4, 2014 by a vote of 221,218 for and 198,577 against, substituted “invest and manage the fund in accordance with the Uniform Prudent Investor Act” for “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”; deleted D(4) which read: “not more than fifteen percent of the book value of the fund may be invested in international securities at any single time”; and in G, substituted “ten billion dollars ($10,000,000,000)” for “five billion eight hundred million dollars ($5,800,000,000)” at the end.
Notes to Decisions
Bonds.
State treasurer was properly enjoined from investing permanent school funds in United States bonds and treasury notes because such securities were not among those authorized by N.M. Const. art XII § 7 for investment of the permanent school fund. State v. Watts, 34 N.M. 451, 283 P. 905, 1929 N.M. LEXIS 102 (1929) (decided under prior law) .
In a proceeding in mandamus to compel the Permanent School Funds of the State of New Mexico in state highway bonds under N.M. Const. art XII § 7, the court denied the writ because it found that the law required four weeks of publication of notice of the time and place of the sale of the bonds and that no such notice had been given; the court concluded that the proceeding was not sufficiently broad to compel the Wisconsin State Treasurer to re-advertise a sale of the bonds. State v. Marron, 1913-NMSC-092, 18 N.M. 426, 137 P. 845, 1913 N.M. LEXIS 94 (N.M. 1913).
Securities.
State investment officer bought stock contrary to non-obsolete provision of 6-8-9 NMSA 1978 and this section, which prohibited investment of public funds in corporations not incorporated and organized in the United States. State ex rel. Udall v. Colonial Penn Ins. Co., 1991-NMSC-048, 112 N.M. 123, 812 P.2d 777, 1991 N.M. LEXIS 203 (N.M. 1991).
OPINIONS OF ATTORNEY GENERAL
Analysis
Authority of state investment officer.
Duties of state investment council and officer.
Duty of legislature to reimburse state.
Generally.
The state investment council is a separate public unit because it meets the definition of “political subdivision” set forth in federal savings and loan insurance corporation regulations. 1983-1986 N.M. Op. Att'y Gen. No. 486.
Authority of state investment officer.
Based on the strict fiduciary duty imposed by the prudent man rule, the purpose of the permanent fund, and the broad powers conferred by the constitution and statutes, the state investment officer may sell bonds or other fixed income investments at a loss where doing so is necessary to protect the fund. 1989 N.M. Op. Att'y Gen. No. 1989-19.
Duties of state investment council and officer.
The state investment council and state investment officer act as co-trustees of the state permanent fund and severance tax permanent fund. As trustees, only ministerial tasks may be delegated. Decisions relating to the investment of these funds involve the exercise of judgment and discretion; the decision-making function of the state investment council and investment advisor in making investments may not be delegated under either applicable state law or the law of trusteeship. 1983-1986 N.M. Op. Att'y Gen. No. 155.
Any person who acts as a safekeeping custodian of securities owned by the permanent fund or severance tax permanent fund or as an agent of the state investment council and state investment officer in a lending program for such securities is bound by the same fiduciary duties of loyalty as is the investment council and investment officer. Such agent may not engage in self-dealing or competition in the lending of the state’s securities. The investment council and investment officer as trustees of these securities have no authority to waive the agent’s conflict of interest. 1983-1986 N.M. Op. Att'y Gen. No. 155.
Duty of legislature to reimburse state.
If the state investment council sells a bond or other fixed income investment at a loss, that loss must be reimbursed by the state as required in N.M. Const. art XII § 7, but it is the legislature’s duty to make the reimbursement because N.M. Const. art XII § 7 is not self-executing. 1989 N.M. Op. Att'y Gen. No. 1989-19.