2006 Legislation
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HOUSE BILL NO. 592 – Endowment funds, gains/losses

HOUSE BILL NO. 592

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Bill Status



H0592......................................................by STATE AFFAIRS
PERMANENT ENDOWMENT FUNDS - Amends existing law to revise the method for
the calculation of gains and losses of the permanent endowment funds.
                                                                        
02/08    House intro - 1st rdg - to printing
02/09    Rpt prt - to St Aff
02/16    Rpt out - rec d/p - to 2nd rdg
02/17    2nd rdg - to 3rd rdg
02/22    3rd rdg - PASSED - 68-0-2
      AYES -- Anderson, Andrus, Barraclough, Barrett, Bastian, Bayer,
      Bedke, Bell, Bilbao, Black, Block, Boe, Bolz, Brackett, Bradford,
      Cannon, Chadderdon, Clark, Collins, Deal, Denney, Edmunson,
      Ellsworth, Eskridge, Field(18), Field(23), Garrett, Hart, Harwood,
      Henbest, Henderson, Jaquet, Kemp, Lake, LeFavour, Loertscher,
      Martinez, Mathews, McGeachin, McKague, Miller, Mitchell, Moyle,
      Nielsen, Nonini, Pasley-Stuart, Pence, Raybould, Ring, Ringo,
      Roberts, Rusche, Rydalch, Sali(Sali), Sayler, Shepherd(2),
      Shepherd(8), Shirley, Skippen, Smith(30), Smith(24), Smylie(Luker),
      Snodgrass, Stevenson, Trail, Wills, Wood, Mr. Speaker
      NAYS -- None
      Absent and excused -- Crow, Schaefer
    Floor Sponsor - Deal
    Title apvd - to Senate
02/23    Senate intro - 1st rdg - to St Aff
02/28    Rpt out - rec d/p - to 2nd rdg
03/01    2nd rdg - to 3rd rdg
03/07    3rd rdg - PASSED - 33-0-2
      AYES -- Andreason, Brandt, Broadsword, Bunderson, Burkett, Cameron,
      Coiner, Compton, Corder, Darrington, Davis, Fulcher, Gannon, Geddes,
      Goedde, Hill, Jorgenson, Kelly, Keough, Langhorst, Little, Lodge,
      Malepeai, Marley, McGee, McKenzie, Richardson, Schroeder, Stegner,
      Stennett, Sweet, Werk, Williams
      NAYS -- None
      Absent and excused -- Burtenshaw, Pearce
    Floor Sponsor - Little
    Title apvd - to House
03/08    To enrol
03/09    Rpt enrol - Sp signed
03/10    Pres signed
03/13    To Governor
03/14    Governor signed
         Session Law Chapter 43
         Effective: 06/30/00

Bill Text


                                                                        
                                                                        
  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-eighth Legislature                   Second Regular Session - 2006
                                                                        
                                                                        
                              IN THE HOUSE OF REPRESENTATIVES
                                                                        
                                     HOUSE BILL NO. 592
                                                                        
                                 BY STATE AFFAIRS COMMITTEE
                                                                        
  1                                        AN ACT
  2    RELATING TO INVESTMENT OF PERMANENT  FUNDS;  AMENDING  SECTION  57-724,  IDAHO
  3        CODE,  TO  REVISE  THE  METHOD  FOR  THE  CALCULATION OF GAINS AND LOSSES;
  4        DECLARING AN EMERGENCY, PROVIDING A RETROACTIVE EFFECTIVE DATE AND PROVID-
  5        ING APPLICATION.
                                                                        
  6    Be It Enacted by the Legislature of the State of Idaho:
                                                                        
  7        SECTION 1.  That Section 57-724, Idaho Code, be, and the  same  is  hereby
  8    amended to read as follows:
                                                                        
  9        57-724.  DETERMINATION  OF GAINS AND LOSSES. (1) Gains. Gains to permanent
 10    endowment funds shall be determined by the investment board when  the  current
 11    market  value of the permanent endowment fund as of the end of the fiscal year
 12    exceeds the gain benchmark market value of the permanent endowment fund. Gains
 13    for each permanent endowment fund shall be calculated as of June  30  of  each
 14    fiscal  year  by  subtracting the gain benchmark market value as of June 30 of
 15    such year, after all adjustments set out in this  section,  from  the  current
 16    market  value of the permanent endowment fund as of the same June 30 date. The
 17    gain benchmark market value shall begin with the market value of the permanent
 18    endowment fund calculated as it existed on June 30, 2000, and shall  be  modi-
 19    fied on June 30 of each subsequent fiscal year by the percentage change in the
 20    average  of the immediately preceding three (3) fiscal years of the unadjusted
 21    consumer price index for all urban consumers as issued by  the  United  States
 22    department  of  labor,  and  by the addition of funds deposited as a result of
 23    land sales and mineral royalty payments adjusted cumulatively as of June 30 of
 24    each fiscal year thereafter for inflation during the preceding year  based  on
 25    the  unadjusted  consumer  price index for all urban consumers as published by
 26    the United States department of labor, hereafter referred to in  this  section
 27    as "CPI-U," and further adjusted for certain deposits of funds into the perma-
 28    nent  endowment  fund during the preceding year, such adjustments to be calcu-
 29    lated as follows:
 30        (a)  Inflation Adjustment.  The  gain  benchmark  market  value  shall  be
 31        adjusted  for  inflation  as of June 30 of each fiscal year by multiplying
 32        the gain benchmark market value as of the commencement of business on July
 33        1 of the preceding calendar year by the sum of one (1) plus the percentage
 34        change in the average CPI-U for the fiscal year then ending. The  percent-
 35        age  change  in  the  average  CPI-U shall be a fraction, the numerator of
 36        which is the average CPI-U for the fiscal year then ending less the  aver-
 37        age  CPI-U  for the preceding fiscal year, and the denominator of which is
 38        the average CPI-U for the preceding fiscal year.  The  average  CPI-U  for
 39        each  fiscal  year  shall be calculated by dividing the sum of the monthly
 40        CPI-U index figures for such fiscal year, July  through  June,  by  twelve
 41        (12).
 42        (b)  Deposit  of Funds. After adjustment for inflation, the gain benchmark
 43        market value shall be further adjusted  by  adding  the  amount  of  funds
                                                                        
                                           2
                                                                        
  1        deposited  into  the permanent endowment fund from and including July 1 of
  2        the preceding calendar year through and including  the  June  30  date  of
  3        adjustment, from any of the following sources:
  4             (i)   Land sales proceeds not deposited into the land bank fund under
  5             section 58-133(2), Idaho Code;
  6             (ii)  Funds  transferred  from the land bank fund after expiration of
  7             the time frame under section 58-133(3), Idaho Code;
  8             (iii) Mineral royalty payments; or
  9             (iv)  Such other deposits into the permanent endowment  fund  as  are
 10             required  by  law or otherwise permitted to be added to the permanent
 11             endowment fund except for the following:
 12                  1.  Deposits to make up for losses to  the  permanent  endowment
 13                  fund;
 14                  2.  Deposits  of  earnings  reserves  if the state board of land
 15                  commissioners directs that such deposit not be added to the gain
 16                  benchmark market value; or
 17                  3.  Other deposits, including bequests, to the permanent  endow-
 18                  ment  fund  if the depositor or grantor thereof directs that the
 19                  deposit not be added to the gain benchmark market value.
 20        (c)  Gain Benchmark Floor. Notwithstanding any  other  provision  of  this
 21        section,  in no event shall the gain benchmark market value fall below the
 22        permanent corpus balance. For purposes of this subsection,  the  permanent
 23        corpus  balance  shall  be calculated by adding to the permanent endowment
 24        fund balance as of June 30, 2000, all deposits to the permanent  endowment
 25        fund up to and including the June 30 date of adjustment, other than depos-
 26        its  resulting  from  the investment activities of the permanent endowment
 27        fund and deposits made to make up losses to the permanent endowment fund.
 28        (2)  Losses. Losses to permanent endowment funds shall  be  determined  by
 29    the  investment board when the market value of the permanent endowment fund as
 30    of the end of the fiscal year is less than the loss benchmark market value  of
 31    the  permanent endowment fund. The investment board shall calculate any annual
 32    loss as well as the cumulative loss for each permanent endowment  fund  as  of
 33    June 30 of the fiscal year.
 34        (a)  Cumulative  Loss.  The  cumulative  loss for each permanent endowment
 35        fund shall be equal to the difference between the  loss  benchmark  market
 36        value  as of June 30 of the fiscal year, after all adjustments to the loss
 37        benchmark market value as set out below in this subsection  (2),  and  the
 38        current  market  value of the permanent endowment fund as of the same June
 39        30 date.
 40        (b)  Annual Loss. The annual loss for a fiscal year shall be equal to  the
 41        increase,  if  any,  of  the  cumulative loss as of June 30 of such fiscal
 42        year, compared to the cumulative loss as of June 30 of the preceding  fis-
 43        cal year.
 44        (c)  Loss  Benchmark.  The  loss benchmark market value for each permanent
 45        endowment fund shall begin with the market value of the  permanent  endow-
 46        ment fund calculated as it existed on June 30, 2000, and shall be modified
 47        on  June 30 of each subsequent fiscal year by the addition of funds depos-
 48        ited as a result of land  sales  and  mineral  royalty  payments  adjusted
 49        cumulatively  as  of  June 30 of each fiscal year thereafter by adding the
 50        amount of funds deposited into  the  permanent  endowment  fund  from  and
 51        including  July 1 of the preceding calendar year through and including the
 52        June 30 date of adjustment, from any of the following sources:
 53             (i)   Land sales proceeds not deposited into the land bank fund under
 54             section 58-133(2), Idaho Code;
 55             (ii)  Funds transferred from the land bank fund after  expiration  of
                                                                        
                                           3
                                                                        
  1             the time frame under section 58-133(3), Idaho Code;
  2             (iii) Mineral royalty payments; or
  3             (iv)  Such  other  deposits  into the permanent endowment fund as are
  4             required by law or otherwise permitted to be added to  the  permanent
  5             endowment fund except for the following:
  6                  1.  Deposits  to  make  up for losses to the permanent endowment
  7                  fund; and
  8                  2.  Deposits of earnings reserves.
  9        (d)  Loss Recovery. Cumulative lLosses to  in  permanent  endowment  funds
 10        other than the public school permanent endowment fund shall may be made up
 11        from earnings reserve fund moneys that the state board of land commission-
 12        ers  determines  will  not be needed for administrative costs or scheduled
 13        distributions to  each  endowment's  respective  income  fund.  Cumulative
 14        lLosses  to in the public school permanent endowment fund shall be made up
 15        as follows:
 16             (ai)   The state board of land commissioners  may  annually  transfer
 17             any  funds  in the public school earnings reserve fund that it deter-
 18             mines will not be needed for administrative costs or  scheduled  dis-
 19             tributions  to  the public school income fund in the following fiscal
 20             year to the public school permanent endowment fund, to  make  up  for
 21             all or part of any prior then existing cumulative losses in value the
 22             public school permanent endowment fund.
 23             (bii)  If funds transferred from the earnings reserve fund are insuf-
 24             ficient to make up any losses in value to a cumulative loss exists in
 25             the  public  school permanent endowment fund, and the market value of
 26             the public school permanent endowment fund at as of the end of each a
 27             fiscal year, remains below the and there has also been  a  cumulative
 28             loss  benchmark market value at the end of each of the preceding nine
 29             (9) fiscal years, for a total of ten (10)  consecutive  fiscal  years
 30             ending  with a cumulative loss, then, to the extent the then existing
 31             cumulative loss is not made up from transfers  of  earnings  reserves
 32             under  subsection  (2)(d)(i)  of this section, the legislature shall,
 33             make up the loss by legislative transfer or appropriation  authorized
 34             during  one  (1)  or both of the next succeeding two (2) regular ses-
 35             sions of the legislature., Such loss to be made up shall be authorize
 36             a deposit to the public school permanent endowment fund in an  amount
 37             equal to the lesser of: the:
 38                  (i)1.  The cCurrent cumulative loss; or
 39                  (ii)2.  An  amount  not less than the aAnnual loss determined in
 40                  the first year of the preceding consecutive ten (10) consecutive
 41                  fiscal years, provided however, the legislature may  offset  the
 42                  amount  of this annual loss by any deposits of earnings reserves
 43                  made by the land board into the public school  permanent  endow-
 44                  ment fund after the end of the fiscal year for which such annual
 45                  loss  was calculated, but only to the extent any such deposit of
 46                  earnings reserves has not been used  previously  to  offset  the
 47                  amount of a prior legislative deposit under this subparagraph 2.
 48             (ciii) The  deposit of aAny transfers or appropriations authorized by
 49             the legislature for deposit into the public school  permanent  endow-
 50             ment  fund  under  subsection  (2)(d)(ii)  of this section shall take
 51             place at after the end of the fiscal year, after the determination of
 52             gains and losses. If the market value of the public school  permanent
 53             endowment  fund exceeds the loss benchmark market value at the end of
 54             any fiscal year in which legislative transfers or appropriations  are
 55             authorized  to  the public school permanent endowment fund, then such
                                                                        
                                           4
                                                                        
  1             transfers or appropriations shall be reduced by the lesser of the:
  2             (i)   Amount that the market value of  the  public  school  permanent
  3             endowment  fund  would  exceed the loss benchmark market value at the
  4             end of the fiscal year if all  authorized  legislative  transfers  or
  5             appropriations were to be made; or
  6             (ii)  Amount  of  the  legislative transfers or appropriations autho-
  7             rized for deposit in the public school permanent endowment  fund  for
  8             the  fiscal  year in which the deposit was authorized by the legisla-
  9             ture, and as soon as is practicable once  the  investment  board  has
 10             calculated  the cumulative loss in the public school permanent endow-
 11             ment fund as of the end of the fiscal year; provided however, in  the
 12             event  the  cumulative loss as of the end of such fiscal year is less
 13             than the amount of the  authorized  deposit,  the  deposit  shall  be
 14             reduced to an amount equal to the cumulative loss, and the balance of
 15             the  authorized  deposit  shall  be  returned  to  the  source of the
 16             deposit.
                                                                        
 17        SECTION 2.  An emergency existing  therefor,  which  emergency  is  hereby
 18    declared  to  exist,  the  calculation of gain benchmark market value and loss
 19    benchmark market value set forth in this act shall be in full force and effect
 20    on and after its passage and approval, and shall be retroactive  to  June  30,
 21    2000, and shall replace and supersede any prior calculation thereof.

Statement of Purpose / Fiscal Impact


                      STATEMENT OF PURPOSE
                                
                            RS 15860
                                
This legislation makes minor adjustments to and clarifies the
calculation of gains and losses to the state s endowment funds. It also
clarifies the mechanism for recovery of losses to the endowments,
including the constitutionally mandated recovery of losses to the
Public School Permanent Endowment.


                          FISCAL NOTE
                                
This bill is not intended to have a fiscal impact on the general fund
or the endowments. Its purpose is to clarify the application of the
existing statutes. The changes to the statutory language are intended
to be revenue neutral and to ensure that transfers from the earnings
reserve fund by the Board of Land Commissioners are fully applied
against any loss that would otherwise have to be made up from the
general fund.


Contact
Name:     Larry Johnson, Manager of Investments,
          Endowment Fund Investment Board
Phone:    (208) 334 3311
      

                                                                                                                        
                                                            
STATEMENT OF PURPOSE/FISCAL NOTE                               H 592