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Utah's $1.6 billion education trust fund overhauled

Published August 2, 2013 9:42 pm

Investing • An independent board will oversee the fund; the change aims to boost its investment returns.
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The Utah Board of Education on Friday voted to overhaul how the state manages a $1.6 billion education trust fund, aiming to safeguard its investment returns for schools and potentially increase those returns.

The state School Fund, which is funded by money from oil, gas and other commercial enterprises on 3.4 million acres of state trust lands, generated $37 million for public schools this year, reducing the burden on taxpayers.

But could the public fund be getting more bang from its $1.6 billion bucks?

A task force of professional investment counselors says changes could increase the fund's average return, which has stood at 5.75 percent over the past decade.

"This whole thing is about checks and balances," said attorney Timothy Donaldson, director of the School Children's Trust. "We need to do all we can to make as much money as we can [from the trust]."

The task force, which has been working since February, made its report to the state board on Friday with these recommendations:

• An independent board should oversee the fund; currently, the elected state treasurer manages it.

• Investment language should be changed to provide more consistent revenue, a step that would require a state Constitutional amendment.

• Reporting requirements about the fund's management should be enhanced.

• An annual audit should be conducted.

• The new board should be allowed to use the "prudent investor rule," instead of the Legislature stipulating particular investments.

• The trust should be excluded from an antiquated "subscription to stock" prohibition, giving the board more leeway in investments.

• Different agents should handle the investments and the dividend checks.

The seven-member task force unanimously agreed to the seven recommendations, which were approved by the state board.

"These are modern best practices for portfolio theory, which is diversity," said state board member Jennifer Johnson, who served as chair of the task force.

The State Trust and Institutional Lands Administration (SITLA) manages the lands that support the trust. Under the Utah Constitution, the fund's principal cannot be touched. The fund's gains are reinvested, while dividends and interest are allocated to public schools based on enrollment.

Each school's community council, made up of educators and parents, decides how to spend the money.

Donaldson told the board the recommendations would help buffer the fund from lawmakers who may want to use it for other purposes. Recently, the Legislature has looked into using the fund for relocating the state prison in Draper and to make up for reduced sales tax revenue, among other issues.

At Friday's meeting, board member David Thomas asked whether the restructuring would increase the fund's returns.

Elizabeth Tashjian, a University of Utah finance associate professor and task force member, replied there are no guarantees, but said other endowments using these best practices have shown greater returns.

A study by Callan & Associates predicts that after eight years under the new structure, the trust fund would have a market value of about $2.8 billion that would generate about $66 million for public schools.

Board members also asked who and how people will be nominated to the new independent board, but the task force did not make recommendations about how to create it.

Next, state education officials will work with the Legislature to craft how to form the new board, which also will oversee two much smaller funds that support deaf and blind students.

Task force member David Hemingway, a senior investment officer at Zions Bank, said he would have liked the new board to have been integrated into the state treasurer's office, saving the money needed to create a new government agency. But that option didn't make it into the final list of recommendations.

"Do we really want to take $500,000 to a million dollars out of the fund to form a new department?" Hemingway asked.


Twitter: @RayUtah




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