State legislative stabilization reserve account.                      06LSO-0075.L1

FISCAL NOTE

 

The fiscal impact of transferring funds from the existing Legislative Stabilization Reserve Account to the proposed State Legislative Stabilization Reserve Account One is indeterminable. Funds within this reserve account shall not be expended except upon a two-thirds (2/3) vote of each house of the legislature voting separately.

 

This proposed fund is created in anticipation of the passage of 2006 House Joint Resolution 1. This resolution authorizes the creation of state legislative stabilization reserve accounts, restricts appropriations from such reserve accounts, and establishes them as permanent funds of the state.

 

 

Prepared by:   Dean Temte, LSO     Phone:   777-7881

 

 

 

 

Currently by law, only the Permanent Mineral Trust Fund and the Permanent Land Fund can be invested up to a maximum of 55% in equities.  The equity portion of these portfolios produces income from dividends and capital gains. 

 

Based on market projections, the State Treasurer assumes a 7% long-term (10+ years) total return for a fund like the Permanent Mineral Trust Fund invested in a fully diversified portfolio of 50% equities and 50% fixed income & cash versus a 5% long-term (10+ years) total return for a fund invested solely in fixed income and cash, such as the State Agency Pool.  The State Legislative Stabilization Reserve Account is expected to produce a long-term (10+ years) total return similar to the Permanent Mineral Trust Fund.

 

The Permanent Mineral Trust Fund’s actual return for the 3-year period ending 06/30/05 was 8.2%, with 71% of the portfolio allocated to fixed income & cash and 29% allocated to equities.  The State Agency Pool’s actual return for the 3-year period ending 06/30/05 was 4.0% with 100% of the portfolio allocated to fixed income & cash.

 

 

Prepared by:   Sharon Garland / Michael Walden-Newman,

Treasurer's Office     Phone:   777-7408