Funny Money

New Mexico’s State Investment Fund a Magnet for Scrutiny

By Emily Esterson, 5-02-05

New Mexico Governor Bill Richardson loves good press. And he hates it when a pet economic development program comes under the scrutiny of one of the few reporters he hasn't managed to hire.

So members of the State Investment Councilmust be cowering in the corridors of the Roundhouse, thanks to a front page Albuquerque Journal story Monday that scrutinizes the accounting practices of Earthstone International, the Santa Fe company that makes environmentally friendly cleaning products. In March 2004 Earthstone received a $9 million commitment, to be paid as $5 million initially, plus an addition $4 million when it reached certain revenue goals, from the $200 million state investment fund. That fund invests money, via a private investment advisor, in New Mexico-based startup companies.

The program is a magnet for press: Take $200 million of taxpayer dollars, (for the record, it comes from the Land Grant and Severance Tax Permanent funds which are primarily oil and gas royalties) and tie it to an investment process that few people completely understand (the number of venture capital investments that actually pay off is small, and those that do take years) add in a governor hungry for lots of job-creation-type press, and you have the local media circling.

One of Council's first investment decisions was later rescinded when the state found its due diligence process had not uncovered some shady dealings. Shortly thereafter, the state fired its advisory company and hired Cincinnati-based Fort Washington Capital Partners to manage the state's direct investment program.

In Earthstone's case, it's hard to say what exactly went wrong, or if there is anything wrong, at least from reading Thomas Cole's story. The auditors didn't like the company's accounting practices, but didn't find anything particularly wrong with them, either. To its credit, Earthstone has distribution in the nation's largest retail chains (including Wal-Mart) and has managed to grow steadily. Not bad for a startup.

While the program generates a fair amount of ink for Richardson's administration, it's also had a few very public missteps, proving just how difficult it is to take such a politically infused program out of the public eye.

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