A month ago, we wrote about the New Mexico Small Business Corporation (NMSBIC), which has absorbed some $9 million in losses and asked in a headline: “Is this a big deal?”
Apparently it’s a big enough deal for the entity that funds the NMSBIC to pass a series of recommendations aimed at changing how the agency is run.
Some background: The NMSBIC was created 10 years ago by the state legislature as a way to encourage and grow small and start-up businesses across the state. It’s funded by the State Investment Council (SIC), which is mandated to send 1 percent of the state’s Severance Tax Permanent Fund the NMSBIC’s way. One percent may not seem like much but when you consider that the Severance Tax Permanent Fund is currently worth $3.9 billion — well, we’re talking about some real money here.
So what’s the problem?
A couple things: First, there are those $9 million in losses the NMSBIC has racked up during its existence on investments that fizzled.
Second, in light of those losses, a number of SIC members feel that while the NMSBIC’s reason for existence may be worthy, the SIC should not be affiliated with it. Why? Because the SIC — which handles more than $15 billion in state assets — exists in order to maximize profit on state investments. As investment types say, that is its primary fiduciary duty.
But an organization like the NMSBIC, these SIC members say, is an “economically targeted investment” that exists not only to make money but — primarily — to provide social benefits such as job creation and economic development to a specific area or entity. In fact, NMSBIC chaiman Paul Goblet told SIC members at their April meeting that “We’re not governed by the ‘prudent man rule.'”
“But we have to book your assets,” SIC board member Leonard Lee Rawson said at that meeting. “This is where the tension builds.”
And sure enough, at the SIC’s May meeting held this past Tuesday (May 24), the board approved a series of recommendations to the legislature (which created the NMSBIC), Gov. Susana Martinez (who sits on the SIC and approves board members for the NMSBIC) and for the NMSBIC board itself, calling for:
- the governor to consider appointing new members to the NMSBIC board and review its sitting members
- the legislature to consider changes in the statute governing the NMSBIC to include some changes in how the agency makes and determines investments
- and that the NMSBIC board “promptly” issue a request for proposal for investment advisors to help oversee the agency’s decisions
Rawson has been blunt about the NMSBIC and during Tuesday’s meeting he said, “We’ve got an agency that’s running loose.”
Afterwards, I talked Rawson on camera:
Paul Goblet, NM Small Business Corporation
Goblet said he had not heard of the SIC’s recommendations until I contacted him late Tuesday afternoon but said in an e-mail:
Needless to say, I am very disappointed, although not surprised. The SIC has wanted to
get out of the headlights for 2 years, so all of these investment programs are a distraction.
Just a word of prophesy…if New Mexico does not invest in its businesses…who will?
