"The biggest risk to the fund is there is only one fiduciary and he's the elected treasurer. That structure might not be the right one," said Timothy Donaldson, a fiscal analyst with the Utah State Office of Education. "You want professional hands on the steering wheel, not political hands."
SITLA manages the land, while the endowments these lands support are managed by the state treasurer, a post currently held by Richard Ellis, who has about $10 billion in other state funds to worry about.
The question of whether this is the best arrangement will be at the top of the agenda when the seven-member School Trust Investment Task Force holds its first meeting Wednesday under the leadership of state school board member Jennifer Johnson.
"It's a good exercise to step back and look at our governance," said Ellis, who appointed his chief deputy, David Damschen, to serve on the task force. But the treasurer believes concerns are overblown because safeguards prevent abuses and ensure the funds are invested wisely.
"There's an investment advisory committee made up of professionals appointed by the beneficiaries of the funds," Ellis said.
But Donaldson said a better arrangement could be modeled on Idaho's, whose school fund is administered by an independent team of professionals focused on the fund's beneficiaries and with no divided loyalties. And Utah law requires little of its treasurer candidates other than being at least 25, a registered voter and a state resident.
Ellis, elected in 2008, is highly qualified to manage investments, holding an MBA and years of experience.
He served as his predecessor Ed Alter's chief deputy and has headed the governor's office of Planning and Budget under two administrations.
Education officials were careful to praise Ellis and Alter's oversight, but the state has not been so lucky in the past.
"Removing a constitutional officer who is misbehaving is not easy," Donaldson said. "It's better and wiser to fix this before there's a problem."
If history is any guide, school officials have grounds for concern.
In the 1930s the school fund was tapped to make private loans to towns and farmers that were later forgiven, and the Legislature liquidated some of its holdings at a loss to cover budget shortfalls in 1982, according to a memo Johnson provided to task force members.
More recently, legislative inquiries have been made into using the fund to build the proposed Lake Powell pipeline, relocate the prison, offset falling sales tax revenues and pay for "speculative litigation" against the federal government.
"In light of those concerns, safeguarding the trust from political risk is a paramount concern for the future of the trust," Johnson wrote.
SITLA supports 12 different funds, but by far the largest is the School Trust Fund, representing 96 percent of the funds' combined value. These funds' investments are commingled, but accounted for separately, and follow a passive investment strategy, according to Ellis. The fund's gains are re-invested while dividends and interest are used to cover expenses and distribute to beneficiaries.
Since the stock market collapse of 2008, the fund has performed well, officials say. The three-year average has been 9.08 percent, and last year the return hit 13.5 percent, according to Ellis.
But as recently as 1995 the school fund invested only in bonds. Today's target allocation is 47 percent domestic equities, 20 percent international, 23 percent fixed income and 10 percent real estate.
The school trust distributions account for about 1 percent of the state's spending on public education. Donaldson wonders if that share can be bumped up to 7 to 10 percent over time. Top performing states often see returns 1 to 2 points higher than Utah's returns, Donaldson said.
To put this in perspective, 2 percent of the fund's current value is $30 million, a sum about equal to its annual distributions to schools.
"Money that isn't made through investment is money that the Legislature has to make up through taxes," Donaldson said.
School Trust Investment Task Force
The seven-member panel begins discussing whether and how to overhaul management of the $1.5 billion State School Fund on Wednesday. The meeting is scheduled for noon to 2 p.m. at SITLA's Salt Lake City office, 675 E. 500 South. The task force's recommendations and proposed legislation are to be released July 18.