Portfolio for Progress
A Proposed State Constitutional Amendment
Bolstering Capital Investment for Public College Students & Programs
Washington State
University and the state’s five other public four-year colleges and universities
propose that the 2007 Legislature approve a change to the state constitution
and related statutes to allow for the investment of higher education permanent
fund trust monies in equities when appropriate. Currently, investments are limited exclusively to
low-yield government bonds. The constitutional change would require approval of
the voters in November.
The constitution has
already been changed to allow other state education and pension trusts to be
invested in equities. There is no reason not to extend the same authority to
the permanent funds of the state’s colleges and universities. Previous changes to the state constitution have been
approved to allow the common schools permanent fund, the pension funds, the
L& I funds and disability trust funds to be invested in equities. By not
allowing similar investments in the higher education permanent funds those
funds have provided embarrassingly low returns.
The state constitution prohibits
university permanent trust funds from being invested “in the stock of any
company, association or corporation.”
(Article XII, Section 9.) This effectively means that the proceeds from the
sale of timber on trust lands, which have themselves been significantly reduced
over the last many years, and which must be deposited in university “permanent
funds,” can only be invested in low-yielding government bonds. Unlike funds
that are held for the common schools and public pension programs, the state
investment board is not permitted to invest university permanent funds in
stocks.
Changing this provision
and expanding the investment options for the permanent funds should result in substantially
greater returns, resulting in more funds that can be used for the construction
and preservation of university buildings. For example, the rate of return for the Agricultural Permanent Fund
for the period 1993-2005 was 6.823% and the rate of return for the pension
funds for the same period was 9.876%. The Common School Permanent Fund return
for that period was 6.98%.
Institutions Benefiting
Institutions benefiting from these proposed changes are Washington State University, the University of Washington, Eastern Washington University, Western Washington University, Central Washington University, and The Evergreen
State College.
The history of university
trusts dates back to statehood. In
1889, the federal government granted certain lands to the then newly admitted
State of Washington to be held in trust for what are now the state’s public
baccalaureate institutions. Proceeds from the sale of timber and other crops
on these lands are deposited into “permanent funds” which are managed and
invested by the State Investment Board (SIB.) The income from these permanent
funds is appropriated by the legislature to the universities for the
construction and maintenance of university facilities.
The universities are
seeking the same investment authority for their trusts that was granted in 1966
to trusts that benefit K-12 and in 1985 to public pension retirement funds.
· K-12 School Trust Revenues Are
Invested In Stocks. In 1965, the
legislature adopted Senate Joint Resolution 22 which called for an amendment to
the state constitution and submitted it to the people at the November 1966
general election. The people enacted the amendment (contained in Article XVI,
Section 5) exempting the permanent common school fund from the investment
restrictions contained in the constitution at that time. The amendment states:
The permanent common school fund of this state may be invested as authorized by
law.
· Public Retirement Funds Are
Invested In Stocks. In 1985, the
legislature adopted HJR No. 12 which provided for an amendment to Article XXIX,
Section 1, exempting public pension and retirement funds and the industrial
insurance trust fund from the investment restrictions. The people voted to
enact the amendment at the November 2000 general election. This article of the
state constitution was again amended in 2000 by SJR No. 8214 and by the vote of
the people in the November 2000 general election by including funds held in
trust for the benefit of persons with developmental disabilities. The
provision as amended now states: “Notwithstanding the provisions of sections
5, and 7 of Article VIII and section 9 of Article XII or any other section or
article of the Constitution of the state of Washington, the moneys of public
pension or retirement fund, industrial insurance trust fund, or fund held in
trust for the benefit of persons with developmental disabilities may be
invested as authorized by law.”
Federal Implications for Washington State University
There
are two trusts that are held by the state to benefit the students and programs
at Washington State University. The permanent fund of one of these trusts, the
scientific trust, will immediately benefit from state constitutional and
statutory changes that permit equity investment. However, a change in federal
law may be required for this to be implemented for the permanent fund of the
second trust which is known as the “Agricultural Trust.” If necessary,
Washington State University will work with the state’s congressional delegation
to propose changes to section 304 of the First Morrill Act, 7 USCA 301 to
clarify permission to invest in equities.
Implementing Legislation
Some state statutes will also need to be revised to
obtain the full benefit of the constitutional amendment.
More information is available by
contacting: Larry Ganders, Assistant to the WSU President, 360-280-6320,
ganders@wsu.edu, Rich Heath, senior associate vice president, WSU Business
heath@wsu.edu.
More information is
available by contacting:
Larry Ganders, Assistant
to the WSU President
360-280-6320,
ganders@wsu.edu
Rich Heath, Senior Associate Vice President
WSU Business Affairs
heaths@wsu.edu
