Summary Proceedings

D r a f t O n l y A p p r o v a l P e n d i n g SSUUMMMMAARRYY ooff PP RROOCCEEEEDDIINNGGSS SELECT COMMITTEE ON CAPITAL FINANCING & INVESTMENTS C OMMITTE E MEE TING INFORM ATIO N November 25, 2013 Oil and Gas Conservation Commission Casper, Wyoming C OMMITTE E ME MBE RS PRE S E NT Senator Hank Coe Senator Fred Emerich Senator Floyd Esquibel Senator Curt Meier Senator Drew Perkins Representative James Byrd Representative Steve Harshman Representative Dan Kirkbride Representative Mike Madden Representative John Patton C OMMITTE E ME MBE RS N OT PRES ENT Senator John Schiffer Representative Robert McKim LEGISL ATIV E SE RV ICE OFFICE ST AFF Dave Gruver OTHERS PRE S E NT AT ME E TING Please refer to Appendix 1 to review the Committee Sign-in Sheet for a list of other individuals who attended the meeting. The Committee Meeting Summary of Proceedings (meeting minutes) is prepared by the Legislative Service Office (LSO) and is the official record of the proceedings of a legislative committee meeting. This document does not represent a transcript of the meeting; it is a digest of the meeting and provides a record of official actions taken by the Committee. All meeting materials and handouts provided to the Committee by the Legislative Service Office, public officials, lobbyists, and the public are on file at the Legislative Service Office and are part of the official record of the meeting. An index of these materials is provided at the end of this document and these materials are on file at the Legislative Service Office. For more information or to review meeting materials, please contact the Legislative Service Office at (307) 777-7881 or by e-mail at [email protected]. The Summary of Proceedings for each legislative committee meeting can be found on the Wyoming Legislature’s website at http://legisweb.state.wy.us. EXECUTIVE SUMMARY The Committee received statutorily required and other reports from the State Treasurer's Office and discussed those reports and public purpose investments. A draft spending policy report was reviewed and approved by the Committee. The Committee did not schedule any additional meetings for the interim. CALL TO ORDER Immediate past chairman Perkins called the meeting to order at 10:00 a.m. Representative Patton was elected chairman and Senator Perkins was elected vice-chairman. Representative Patton asked that vice- chairman Perkins chair the meeting. The following sections summarize the Committee proceedings by topic. Please refer to Appendix 2 to review the Committee Meeting Agenda. State Treasurer Reports State Treasurer Mark Gordon thanked the Committee for its assistance the past interim and introduced Michael Walden-Newman of his office. Mr. Walden-Newman reviewed the yearly investment report, excerpts from the quarterly report ending September 30, and the current status of the investment portfolio. (Appendices 3, 4 and 5). He noted each of the nine separate funds constituting the state investment portfolio have their unique asset allocation mix. He discussed the handling of capital gains and losses noting that all capital gains within a fund are netted for the year, and gains are only distributed if there is a net of capital gains for that fund. Under the Treasurer's policy, there could be net losses in capital which are accrued to the fund while interest and dividends are distributed from that fund. Investment managers are given discretion to manage the funds allocated to them as the Treasurer’s Office provides policy and contract limitations at the beginning of the contract period. From that point it is mostly manager discretion, but the Treasurer’s Office does address when rebalancing is needed and contacts Managers to rebalance by taking gains as necessary to keep in accord with the investment policy. Management fees were discussed with Mr. Walden-Newman noting that fees are deducted in many instances with the distribution to the State on a net basis. He also noted that fixed income investments can be sold for gains and losses and that the State had repositioned itself this past year for fixed income investments with good interest bonds being sold (which produced capital gains in exchange for foregoing those interest payments in later years). That was done in anticipation of rising interest rates and the managers have been allocated funds to allow for investment in higher yielding (junk) bonds and bank loans. Treasurer Gordon noted the bond portfolio long term did not look good currently or in the immediate future, thus the idea was to provide a lower duration risk for that portfolio. In response to committee questions Mr. Walden-Newman stated that investment benchmarks have been updated and are constantly being reviewed and reset by the Treasurer’s Office. The timeframes and actions taken to readjust the benchmarks were explained. He also responded to questions concerning the risk of prohibiting investment of state agency pool funds (over $5 billion) in equities. In his view there is a downside risk for holding only fixed income, while permanent fund and worker's compensation portfolios can hold equities and thus have a better balanced portfolio under which the equity investments can offset fixed income losses in the sale of fixed income investments. Under the State Constitution only permanent funds, retirement funds (not invested by the State Treasurer) and worker's compensation funds may be invested in equities. By statute up to 55% of permanent funds (PWMTF, Permanent Land Funds, Hathaway and Excellence in Higher Education) and up to 45% of the worker’s compensation fund may be invested in equities. Public purpose investments Treasurer Gordon introduced deputy Treasurer, Sharon Garland, who provided the Committee with two lists of public purpose investments, the first showing statutory citations for each public purpose investment and the second showing the authorized amount of investment and the amount actually invested. (Appendices 6 and 7). The Treasurer's Office noted the lists show state funds invested for a specific public purpose, other than permissible investments made in compliance with state investment policy under W.S. 9-4-715 through 9-4-719 and 9-4-831, which are authorized or directed by the legislature in law. Total investments of permanent funds for a specific public purpose are limited to six hundred million dollars excluding investments made pursuant to W.S. 37-5-406 (infrastructure authority bonds). Prior to the convening of each general session of the legislature, the State Treasurer, after consultation with the State Loan and Investment Board, is to recommend to the Select Committee on Capital Financing and Investments whether any adjustment should be made to the limitation. Most of these investments are made from the Permanent Wyoming Mineral Trust Fund. Ms. Garland noted that on the listing provided six of the investments are administered through the State loan and investment board and the office of state lands and investments. Others are administered by the state water development commission. Others are specifically mandated by legislative direction as one time investment of state funds (e.g., Shoshone Municipal Pipeline, Sheridan Water Treatment Plant and Gillette Madison Pipeline). Finally others are administered by the Treasurer’s Office. Treasurer Gordon suggested the Committee should review the rates of the various programs. He also discussed the time deposit open account program under which up to 5% of the state agency pool is made available to banks to lend. The Committee and the Treasurer's Office discussed how funds made available to banks under the program are tracked to ensure state funds are used in the state. The Treasure also identified a number of concerns with the industrial development revenue bond program investments. He noted the business council takes the application and indicates that it takes 15-24 months for the process to be completed. After the council recommends investment in the project, the Governor’s office reviews the application and the Treasurer’s Office must still review the project to determine that it meets the prudent investor rule. He noted that the time lag to review the investment and make the changes necessary to meet statutory requirements can cause problems for the project. The Treasurer’s Office is drafting rules on the process, but has not released those until the projects undertaken before last session's statutory changes are acted upon. The rules are focused on the quality of the investment for the Treasurer’s Office review. The rules are also setting forth collateral requirements. He noted specific problems and that he would insist that there be no premature announcements of approval. In response to Committee member questions the Treasurer provided examples of requests that would be sent back to the business council and how the delay in approval could affect the project. He also discussed with the Committee the possibility of using private investment managers with expertise in the types of lending envisioned under the industrial development revenue bond program. He believes there should be a business approach to the investment with any aspect of political influence removed. He also noted that there can be a conflict between prudent investments and economic development investments. Spending Policy Reports In the 2000 session the Legislature established annual spending policy amounts for earnings from the permanent Wyoming mineral trust fund (PWMTF) and the common school account within the permanent land fund (CSPLF). The spending policy amounts are intended to make the amount of earnings available for expenditure from these permanent funds more consistent year to year and to protect the corpuses from inflation. In the 2007 session, an annual spending policy amount for the excellence in higher education endowment fund was established. Like the PWMTF spending policy and reserve account, to the extent earnings from the excellence in higher education endowment fund exceed the spending policy amount, excess earnings flow to the reserve account for that fund.

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