8-21 Are state investments getting too risky?

By JAY MILLER
Syndicated Columnist
SANTA FE -- Are the state's high-risk investments getting a little too risky? The Ohio investment advisers hired to make recommendations appear to think so.
According to an article by Andrew Webb in the Albuquerque Journal, Fort Washington Investment Advisers balked at performing due diligence exams of space-related companies and complained about having to work with two other companies that already were in the state investment portfolio.
The advisers reportedly said that the proposed investments are more like economic development projects than venture capital transactions.
A few years ago the state decided to invest some of its huge permanent funds in startup companies that want to move to New Mexico. It would be good for economic development and if one of them happened to hit it big, the state would be on its way to the prosperity it always has sought.
State economic planners never will forget the move of Microsoft from Albuquerque to Seattle for want of $35,000. That was in the late '70s. New Mexico's permanent fund was booming back then too, because of a worldwide energy crisis and 20 percent interest rates.
Lawmakers weren't sure what to do with all the money. They passed yearly income tax rebates until, finally, they made it permanent with the "Big Mac" tax cut. And, as always seems to happen, energy prices and interest rates soon plummeted and New Mexico was back to being a poor state again.
But the one big change made by state officials during those plush years was to establish a second permanent fund, made up of severance tax receipts from the state's extractive industries.
The state's Severance Tax Permanent Fund is now up to around $4 billion and that's the money being tapped for over $200 million of investments designed to stimulate New Mexico's economic growth.
It is fun to daydream about what might have been if New Mexico had used $35,000 of the money it set aside in a second permanent fund to purchase Microsoft stock in 1978. We might not still be debating tax cuts vs. rebates, because we wouldn't have a state income tax.
Those were the infant days of the personal computer industry. We're now in the infancy of the space travel industry. Could there be a Microsoft hiding somewhere? Maybe personal space travel will never take off. But consider the state of airplane travel at this time last century.
So maybe it's not too far off to be betting some of our chips on Sir Richard Branson's Virgin Galactic or on t/Space's bid to build a new space shuttle for NASA.
Those were the projects the state's investment adviser was queasy about recommending whether we should invest up to $20 million in. You've heard plenty about Virgin Galactic's reservation list of passengers wanting to pay $200,000 for a trip into space.
t/Space is vying for a contract to build a privately operated replacement for the space shuttle. If it is awarded the contract next month, t/Space has announced it will move from Virginia to New Mexico.
The investment advisers say the space companies are outside the purview of its existing contract with the state and are beyond the call of duty. Both sides accuse the other of not complying with industry standards.
Also at issue is another $46 million pool of money invested directly in technology companies. The investment advisers want to stay involved with that one because it is making money and they get to share in the profits.
State Investment Officer Gary Bland says the technology fund is making money because of the success of Eclipse Aviation, another controversial investment by the state, which already was in the state's portfolio when the current investment adviser took over.
So is the investment adviser trying to limit its liability on future investments while cashing in on the state's past good investments? It likely will take a court to decide.
Bland says it is like a divorce with a child involved.
MON, 8-21-06

JAY MILLER, 3 La Tusa, Santa Fe, NM 87505
(ph) 982-2723, (fax) 984-0982, (e-mail) insidethecapitol@hotmail.com