Thursday, November 20, 2008

Rio Grande Foundation Investigating State's Investments.

by Paul Gessing and
Jim Scarantino

With Governor Bill Richardson's name being floated as a possible U.S. Commerce Secretary, and with multi-billion dollar government acquisitions and bailouts coming out of Washington, the Rio Grande Foundation is taking a closer look at New Mexico’s own “investment” efforts.

New Mexico has been investing in supposedly “private” companies for years through the State Investment Council (SIC) and other government bodies. But the public and policymakers have little to no information on the success or failure of these investments.

Jim Scarantino, the Rio Grande Foundation’s investigative reporter, decided to take a closer look. In his first in a series of reports on the topic, Scarantino has found:

  • Under the Richardson administration the State has purchased stock in 52 New Mexico companies ranging from computer software designers to dental clinics to a fish monger;
  • These companies are not publicly traded, so there is no market establishing a value for their stock. Nor do they pay dividends. In a sense, these “stocks” have no value;
  • New Mexico is essentially loaning hundreds of millions of dollars interest free in exchange for temporary economic stimulus that can easily fall below expectations;
  • Loans to film producers appear to directly violate the state constitution’s anti-donation clause prohibition on the state lending money or pledging its credit to aid private enterprise; and.
  • A serious question exists whether the state’s risky equity investments may also violate the anti-donation clause.

The largest single equity investment made by the SIC in a New Mexico company is in Eclipse Aviation of Albuquerque. New Mexico has invested just under $20 million in Eclipse, not including millions in employee training tax credits, property tax breaks and other financial benefits. With Eclipse facing failure, New Mexico stands to lose its entire investment.

Scarantino reports the SIC lost its $7 million investment in the failed TCI Medical. Millennium Transportation of Roswell has stopped payment its unpaid $1.4 million loan balance. More of the SIC’s equity investments may fail in this difficult economic environment.

These failures present an opportunity for needed scrutiny by the Legislature and the public into the Richardson administration’s speculative and possibly unconstitutional investment practices.

Read the complete text of the Rio Grande Foundation study here.

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