LEGISLATIVE COUNCIL'S STATEMENTS FOR THE PROPOSED AMENDMENT
Section 3, Article IX
1 Changing the name of the Public School Fund to the Public School Permanent Endowment Fund will promote accuracy and efficiency by clarifying the distinction between this fund and the other funds related to the public school endowment.
2. Creating a Public School Earnings Reserve Fund will provide a mechanism that is necessary to enable the state to use excess earnings in high investment income years to protect the endowments in low-income years. The fund will act as a shock absorber for fluctuations in the investment market. Because it is flexible, the fund will provide predictability and consistency in the amount of money distributed annually to public schools without invading the fund principal. Also, it will help balance the trustee's obligation to provide for present and future beneficiaries of the endowment, Idaho's public schools.
3. Limiting legislative appropriation from the Public School Earnings Reserve Fund to pay for administrative costs is necessary to protect the fund, which the legislature could access and use for other purposes. Further, paying administrative costs from the assets of the endowment will allow the public school endowment to be largely self-supporting. This will promote a close control of costs because performance measurement, primarily through financial assets, would include the cost of operations.
4. The state is currently required to make up losses incurred by the Public School Fund. The proposed amendment merely clarifies that losses would be required to be paid for by the state if losses are incurred by the Public School Permanent Endowment Fund. The amendment clarifies that the definition of losses would be provided by law. Also, the amendment clarifies that losses on moneys from the Public School Earnings Reserve Fund would be excluded from the loss provision. This exclusion would help protect the Public School Earnings Reserve Fund from being depleted.
Section 11, Article IX
1. Currently, the state constitution only allows money in Permanent Endowment Funds to be "loaned." In other words, the money can be invested only in instruments that carry a promise of full repayment. Primarily, this means investment in government bonds. This narrow investment requirement has cost endowment beneficiaries dearly. For example, had this amendment been in effect just ten years ago, the endowments would be worth nearly two hundred million dollars more today.
2. The current investment restrictions are over 100 years old and do not follow modern business practices. Loosening the investment restrictions will provide the state with the ability to engage in up-to-date investment strategies and policies, and will enable it to diversify its portfolio and receive higher rates of return. A portfolio must be diversified to ensure its safety. Greater investment flexibility is important to the long-term health of the endowment funds.
3. This section of the state constitution was amended in 1968 in an attempt to accomplish the same goal that the present amendment would accomplish. The 1968 amendment was approved by the people of the state of Idaho, but a restrictive interpretation by the Idaho Supreme Court nullified the changes that were made. The proposed amendment merely hopes to move beyond that restrictive interpretation.
LEGISLATIVE COUNCIL'S STATEMENTS AGAINST THE PROPOSED AMENDMENT
Section 3, Article IX
1. Changing the name of the Public School Fund to the Public School Permanent Endowment Fund is unnecessary. People who deal with the public school endowment already know what this fund name refers to.
2 Creating a Public School Earnings Reserve Fund will divert money from the Public School Permanent Endowment Fund and would expose the money in the earnings reserve fund to greater volatility due to investments, losses and appropriations.
3. Limiting legislative appropriation from the Public School Earnings Reserve Fund for administrative costs wrongly restricts the appropriation power of the legislature and shifts some of that power to the executive branch of state government. This restriction is a violation of the separation of powers doctrine. Further, merely allowing appropriations for administrative costs does not guarantee that the public school endowment will be self-supporting. Therefore, the gains sought by this amendment are not only wrong, they will be ineffective.
4. The state constitution clearly requires that the state must make up losses in the Public School Fund. No more clarification is needed. The proposed amendment might do more harm than good to the endowments because it excludes losses on moneys from the Public School Earnings Reserve Fund. Money lost from any aspect of the endowment should be made up by the state.
Section 11, Article IX
1. The amendment would allow permanent endowment funds to be invested, rather than loaned. This will expose the state to greater financial risks which might produce greater revenue for the endowments, but which also could cause big losses. The endowment funds are too important to be invested in anything but very safe investment instruments, such as government bonds.
2. The current investment restrictions have been in place for a long time and have served the state well. The financial assets of the endowments have been invested cautiously for over 100 years and are still making money. Change is unnecessary and may be harmful.
3. The courts have interpreted this section of the state constitution narrowly because they understand the important nature of the endowment funds and that these funds must be handled with respect and caution. The state has a fiduciary duty to the present and future beneficiaries of the endowments. Opening the funds to investment in a broader range of investment vehicles could endanger the funds, the state and the endowment beneficiaries. This kind of endangerment would be a breach of the state's fiduciary duty.