Higher education endowment funds.

06LSO-0056.C1

FISCAL NOTE

The non-administrative fiscal impact is indeterminable.

This proposed constitutional amendment authorizes the establishment of inviolate trust funds for higher education and allows such funds to be invested in the same manner as other permanent funds of the state.

The potential impact on investment income is indeterminable as it is not known which funds or the dollar amounts that would actually be invested in equities, as such state funds would also be invested in fixed income vehicles due to cash flow requirements of the fund.

For the funds whose cash flow needs would allow investing in equities, the projected yield would be similar to the Permanent Mineral Trust Fund with yields projected to be 3.07% for FY07, 3.12% for FY08, 3.14% for FY09 and Common School Permanent Land Fund with yields projected to be 2.95% for FY07, 3.01% for FY08 and 3.04% for FY09, while the yield for the state agency pool where these funds are currently invested have projected yields of 4.34% for FY07, 4.53% for FY08, 4.72% for FY09. 

The equity portion of the Permanent Mineral Trust Fund produces income from dividends and capital gains.  The Treasurer’s Office expects equities to produce income during the forecast period, as they have in the past.  However, no income is projected from equities above dividend income, because it is virtually impossible to predict what capital gains will be taken during any one year of the forecast period. 

For example, based on market projections, the State Treasurer assumes a 7% long term total return (10+ years) for the Permanent Mineral Trust Fund invested in a fully diversified portfolio of 50% equities and 50% fixed income & cash versus a 5% long term return (10+ years) for a fund invested solely in fixed income and cash, such as the State Agency Pool.

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 and cash.

Prepared by:   Sharon Garland, Treasurer's Office          Phone:   777-7408

In addition, the Secretary of State's Office will experience an expenditure increase of about $18,000 in FY07 for statutory publication costs, based on historical data.  This cost is the same for all joint resolutions of this type, assuming the length of the statement on the proposed amendment is roughly the same.  Information provided by Pat Arp, Secretary of State's Office, phone:  777-5333.

(This cost may be considered an administrative cost but is listed here for consistency.)