A fracking boom has allowed New Mexico leaders to invest like oil tycoons, socking money into trust funds they hope will turn today’s income into generational wealth.
Despite the recent stock market volatility, state leaders are confident that investment income will be a more stable source of revenue over the long term than the boom-bust oil and gas industry. And in the short term, they are cushioned from losses by massive projected surpluses.
“This is still very much a long-term strategy,” House Appropriations and Finance Chair Nathan Small (D) said. “And we remain, I think, pretty strongly insulated, just by virtue that we’re taking in well over $3 billion more dollars than we’re spending, every single year.”
Gov. Michelle Lujan Grisham (D) and legislative leaders have since 2019 moved additional oil and gas money into legacy funds and created new trusts to fund education, conservation and other services.
State investment officials now manage some $60 billion across 12 funds as of Feb. 28, three times as much money as a decade ago. Legislative analysts project that investment income will become the state’s largest revenue source by 2039.
“That is a truly remarkable story and has put New Mexico where we’re not having to cut budgets, like some of our neighboring states are,” said Wayne Propst, head of the New Mexico Department of Finance and Administration, which administers the state budget.
The legislature recently signed off on spending $11 billion to fund state services in Fiscal Year 2026, which starts on July 1.
All states enjoyed record surpluses during the Covid-19 pandemic. Many seized the opportunity to invest some of the cash.
But New Mexico stands out due to the sheer amount invested, the number of new trust funds created, and lawmakers’ focus on using investment income to insulate the budget from the volatile oil and gas industry, fiscal policy experts say.
“What’s striking about New Mexico is just the amount of dollars they’re putting into [the funds], and the intentionality of the strategy,” said Josh Goodman, a fiscal policy researcher at the Pew Charitable Trusts.
Lujan Grisham this year approved creating two new trust funds. One will help pay for mental health and substance abuse treatment and prevention, and the other will help fund Medicaid, the public health insurance program for low-income people.
Propst said he has been advising lawmakers not to set unrealistic expectations for newly created trust funds or take the strategy too far.
“I have been cautioning that we are at risk of having ‘fund fever’ in New Mexico,” he said.
“There’s a kind of feeling out there that funds fix everything,” Propst said. “But if they’re not properly capitalized to a level that returns investment to fund whatever the fund is created for, then you’re kind of creating some false hope.”
New Mexico’s oil and gas production has grown rapidly over the past eight years. As of last August the state was producing 2 million barrels of oil a day, making it the second-largest oil producing state in the U.S., according to legislative analysts.
As the industry has grown, so has state revenue from federal mineral leasing payments and taxes on oil and gas extraction.
Some of that revenue flows into the state’s largest trust funds — which then make distributions to the general fund — and some flows straight into the general fund. The general fund is the main account lawmakers use to pay for state services.
New Mexico lawmakers have in recent years had so much extra cash in the general fund that they have been able to cut taxes for middle- and low-income people, increase spending on services such as education and affordable housing, and invest millions in new trust funds.
The goal is to create a new, recurring revenue source, lawmakers say.
“We’re trying to take ‘today money’ and turn it into ‘tomorrow money,’” said Sen. Bill Sharer (R), the minority floor leader. “Oil and gas has given us a huge abundance of money over the last several years, and so we had two big-picture options. We could spend it all, which in my humble Republican mind meant squandering most of it. Or we could invest it.”
The most successful fund so far has been the Early Childhood Education and Care Fund, created in 2020 to pay for early childhood services. Funded by excess oil and gas income and an initial $300 million appropriation, the account held $9.2 billion as of the end of February, according to state data.
The early childhood trust fund paid out $150 million last fiscal year and $250 million this year, according to the Department of Finance. The money that has helped tens of thousands of New Mexico children attend preschool and other early childhood programs free of charge.
Lawmakers have since 2019 created six other investment funds dedicated to higher education, workforce development, conservation, rural libraries, capital development and combating opioid abuse. Most of the money in those accounts come from direct appropriations and transfers from other reserves.
The six smaller funds held a total of $2 billion as of the end of February, according to state data.
Lujan Grisham’s team has agreed to seed the two new funds approved this session with an unspecified amount transferred from the early childhood trust fund, according to the Department of Finance.
Although the funds are all set up to disburse a certain amount to the general fund each year, lawmakers can withdraw more when necessary.
“Any of these trust funds, we can reach into,” Sharer said. “They are usable reserves.”
State officials assume a 5% return on investment across virtually all the state’s trust funds, Propst said. That is a conservative assumption that should protect New Mexico from a certain amount of market volatility.
Lawmakers now need to leave the new trust funds alone so they can grow.
“That’s the problem: you have a successful fund, and then everybody wants to take a little bit of it for something,” Propst said. “It requires discipline, and that’s going to be the challenge moving forward.”