Meeting Minutes) Is Prepared by the Legislative Service Office (LSO) and Is the Official Record of the Proceedings of a Legislative Committee Meeting

D r a f t O n l y A p p r o v a l P e n d i n g SUMMARY of PROCEEDINGS S E L E C T C O M M I T T E E O N C A P I T A L F I N A N C I N G & I N V E S T M E N T S

COMMITTEE MEETING INFORMATION November 12, 2019 | 9:00 AM Casper College Gateway Center, Room 225 125 College Drive Casper, Wyoming

COMMITTEE MEMBERS PRESENT Senator Drew Perkins, Chairman Representative Tom Walters, Vice Chairman Senator Wyatt Agar Senator Henry H.R. "Hank" Coe (via phone) Senator Mike Gierau Senator Larry Hicks Senator Dave Kinskey Representative Dan Furphy Representative Steve Harshman Representative Dan Kirkbride Representative Bob Nicholas Representative Andy Schwartz

LEGISLATIVE SERVICE OFFICE STAFF Don Richards, Budget and Fiscal Administrator Tamara Rivale, Legislative Counsel

OTHERS PRESENT AT MEETING Please refer to Appendix 1-02 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 www.wyoleg.gov. PAGE 2 OF 9

EXECUTIVE SUMMARY The Select Committee on Capital Financing and Investments (Committee) met for one day in Casper to develop the Committee's spending policy report to the Legislature and to receive statutorily required reports and recommendations. The Committee also received testimony and information on intergenerational equity, investment of public funds, State Treasurer's Office operations, and state trust lands. The Committee voted to sponsor four bills related to (1) investment of reserve accounts, (2) the Permanent Wyoming Mineral Trust Fund (PWMTF) reserve account, (3) State Treasurer's Office background checks, and (4) a study on state trust lands. The Committee will meet for one additional day during the interim.

CALL TO ORDER Senator Drew Perkins called the meeting to order at 9:00 AM. The following sections summarize the Committee proceedings by topic. Please refer to Appendix 1-01 to review the Committee Meeting Agenda.

APPROVAL OF MINUTES The Committee approved the August 27, 2019 summary of proceedings.

INTERGENERATIONAL EQUITY: UPDATED SCENARIOS Josh Kevan, RVK, presented updates on intergenerational equity for the PWMTF and the Common School Permanent Land Fund (CSPLF) under various revenue assumptions as requested by the Committee at its August 27, 2019 meeting. (Appendix 2-01). Mr. Kevan explained the range of levers that can affect the probability of achieving desired equity outcomes including increasing investment returns, modifying spending levels, or modifying contributions to the corpus. Mr. Kevan discussed the differences in the investment policies of the PWMTF and the CSPLF and how those differences impact intergenerational equity.

The Committee requested RVK provide updated projections with the statutory one percent severance tax not being deposited to the PWMTF corpus for the next two biennia.

FY 2019 INVESTMENT REPORT Curt Meier, State Treasurer, and Patrick Fleming, Chief Investment Officer, presented the State Treasurer's Office investment performance report. (Appendix 3-01, Appendix 3-02, and Appendix 3-03). Mr. Fleming discussed the CSPLF investment policy and invited the Committee to participate in meetings on March 18, 2020 related to those policies. Mr. Fleming next presented on the State's Fiscal Year (FY) 2019 investment performance and the general market outlook, including information on economists' predictions, global and U.S. growth trends, bond expectations, equity expectations, expected yields, risk analysis, and steps taken by State Treasurer's Office to prepare for future market conditions. Mr. Fleming also addressed options to increase internally managed funds.

The Committee requested the State Treasurer's Office continue to consider other sovereign wealth funds' structures and reserve account investments.

SPENDING POLICY MODIFICATION RECOMMENDATIONS - W.S. 9-4-719(P) Curt Meier, State Treasurer, and Matt Sackett, Senior Policy Analyst, State Treasurer's Office, presented the State Treasurer's spending policy recommendations. (Appendix 4-01). Mr. Sackett explained the history of the State's spending policies and noted that the recommendation was supported by the State Loan and Investment Board. In addition, Mr. Sackett presented a hypothetical scenario of how implementing the

SELECT COMMITTEE ON CAPITAL FINANCING & INVESTMENTS Summary of Proceedings

WYOMING LEGISLATIVE SERVICE OFFICE • 200 West 24th Street • Cheyenne, Wyoming 82002 TELEPHONE (307) 777-7881 • FAX 307-777-5466 • E-MAIL [email protected] • WEBSITE www.wyoleg.gov PAGE 3 OF 9 recommended spending policy of 3.75 percent for the PWMTF beginning in 2013 might have changed historic revenue distributions. (Appendix 4-02).

SPENDING POLICIES AND INVESTMENTS Other State's Reserve Accounts Don Richards, Budget and Fiscal Administrator, LSO, presented the follow-up information requested by the Committee during the August 27, 2019 meeting on historic reserve account balances and thresholds. (Appendix 6-01). Mr. Richards also addressed other states’ reserve accounts, including discussion on fund structures, spending policies, investments, and relative size of reserve funds. (Appendix 6-02).

Consideration of Draft Legislation 20LSO-0212 v0.3 Reserve accounts-investments. Tamara Rivale, Legislative Counsel, LSO, introduced 20LSO-0212 v0.3 Reserve accounts-investments. (Appendix 6-03). Ms. Rivale explained the bill daft creates a new provision to authorize 100 percent of the unobligated, unencumbered balance of both the PWMTF Reserve Account and the CSPLF Reserve Account to be invested in equities in accordance with investment policies adopted by the State Loan and Investment Board. Ms. Rivale noted the Committee requested that the bill draft delegate authority to the State Loan and Investment Board and the State Treasurer's Office to determine the investment parameters for the accounts, such as the total percentage that is invested in equities and amount that remains liquid. The Committee discussed the liquidity needs of the reserve accounts and the percentage of other nonpermanent funds invested in equities. Ms. Rivale noted that the bill will require a two-thirds vote of each chamber pursuant to Article 16, Section 6 of the Wyoming Constitution.

The Committee adopted an amendment to revise the distribution of investment earnings on the CSPLF Reserve Account from the General Fund to the School Foundation Program Reserve Account and approved 20LSO-0212 v0.3 Reserve accounts-investments, as amended, for sponsorship by a roll call vote. After further discussion, Representative Harshman moved the Committee reconsider the vote and further amend the bill. The Committee adopted the motion to reconsider the bill draft with the following amendment:

Page 3-line 23 Delete "general". Page 3-line 24 Delete "fund" and insert "account". Page 4-line 15 Delete "general fund" and insert "account".

The Committee adopted 20LSO-0212 v0.3, as amended, by a roll call vote with all members present voting in favor of the motion. Chairman Perkins directed the bill to be numbered as a House Bill.

20LSO-0232 v0.4 PWMTF reserve account. Ms. Rivale introduced 20LSO-0232 v0.4, PWMTF reserve account. (Appendix 6-04). She indicated the bill draft reduces the maximum amount, from 150 percent to 100 percent of the spending policy amount, that may be retained in the PWMTF Reserve Account before excess earnings are transferred to the corpus of the PWMTF. The Committee and Mr. Richards discussed the impact of the bill draft on earnings that are distributed from the Reserve Account to the PWMTF and the number of years that the Reserve Account could "guarantee" distributions under the spending policy to the General Fund and the Strategic Investments and Projects Account in years with no investment earnings.

Senator Kinskey moved the Committee sponsor 20LSO-0232 v0.4. The motion was seconded and passed by a roll call vote (Representatives Harshman, Nicholas, Schwartz and Vice Chairman Walters voting no). Chairman Perkins directed the bill to be numbered as a Senate File.

SELECT COMMITTEE ON CAPITAL FINANCING & INVESTMENTS Summary of Proceedings

Review / Revision / Approval of Committee's Proposed Spending Policy Report to the Legislature - W.S. 9-4-719(p) Mr. Richards reviewed a draft spending policy report with the Committee. Mr. Richards explained the Committee is required to report to the Legislature annually regarding recommended modifications to the spending policy amounts established in law under W.S. 9-4-719(p). The Committee directed LSO to include a recommendation in the report that the Legislature maintain current law for the State's spending policies and to consider changes to reserve accounts contained in the Committee sponsored bills, 20LSO- 0212 v0.3, Reserve accounts-investments, as amended, and 20LSO-0232 v0.4, PWMTF reserve account. The Committee requested the recommendation include the sponsorship vote on each bill. Representative Nicholas moved that the Committee adopt the report, pending review by Chairman Perkins. The motion passed by a voice vote.

INVESTMENT OF PUBLIC FUNDS Report on Investment Funds Committee - 2017 Session Laws, Chapter 202, Section 3 Matt Sackett, Senior Policy Analyst, State Treasurer's Office, presented the State Treasurer's Office report concerning the Investment Funds Committee, including recommendations for changes to investment procedures and laws. (Appendix 8-01).

Consideration of Draft Legislation 20LSO-0154 v0.6 Investment of public funds. Ms. Rivale introduced 20LSO-0154 v0.6, Investment of public funds. She indicated the Committee reviewed a prior version of the bill draft at the August 27, 2019 meeting and that the Committee's Working Group had since met on October 10 to further revise the bill draft. (Appendix 8-02). Ms. Rivale explained the bill amends the State Loan and Investment Board's role in approving investment managers and alternative investments, authorizes the State Treasurer's Office in consultation with the Investment Funds Committee to hire and terminate investment managers, and requires the Investment Funds Committee's approval for alternative investments. She noted the bill draft also requires the employment of a designated chief investment officer, amends the duties and membership of the Investment Funds Committee, and provides an exemption from open meeting laws.

Betsy Anderson, Deputy Chief of Staff and General Counsel, Governor's Office, addressed the Committee and summarized Governor Mark Gordon's comments on the bill draft. She noted general support for the Investment Funds Committee model of investment governance, urged caution to changing investment procedures at this time and provided suggestions for amendments to the bill draft.

Kristi Racines, State Auditor, testified in support of maintaining the State Loan and Investment Board's role in approving investment policy statements and asset allocation. She provided additional comments on the approval of investment managers, the use of "consultation" in the bill draft, the increased duties of the State Treasurer's Office, and the public's opportunity to participate in the process.

Lisa Jerde Spillman, General Counsel, State Treasurer's Office, presented amendments to the bill draft related to the designated chief investment officer, the duties of the Investment Funds Committee, and exemptions to the open meeting laws.

Treasurer Meier provided comments on the bill draft concerning the oversight of investment activities, investment manager selection, and timing challenges with State Loan and Investment Board meetings.

SELECT COMMITTEE ON CAPITAL FINANCING & INVESTMENTS Summary of Proceedings

Chairman Perkins requested each Committee member offer suggestions or comments on the bill. He then directed the Committee's Working Group, comprised of Senators Gierau and Kinskey and Representatives Furphy and Nicholas to revise 20LSO-0154 v0.6, taking into consideration the elected state officials' and Committee members' comments. The Committee directed LSO to schedule a meeting on the morning of December 2 to continue the discussion of the proposed legislation.

20LSO-0211 v0.3 Background checks-state treasurer's office. Vice Chairman Walters presented 20LSO-0211 v0.3 Background checks-state treasurer's office. (Appendix 8-03). He explained the bill draft was prepared in response to the State Treasurer's Office request to authorize background checks for its employees.

Ms. Jerde Spillman testified in support of the bill draft and offered areas for amendment.

The Committee adopted the following amendments:

Page 2-line 6 After "treasurer" insert "." and delete the balance of the line. Page 2-lines 7 through 9 Delete entirely. Page 2-line 18 After "employees" insert ", interns". Page 2-line 20 After "financial" insert ", accounting or investment". Page 3-line 4 After "employee" insert ", intern". Page 3-line 5 After "office" insert "." and delete the balance of the line. Page 3-line 6 Delete entirely.

Senator Hicks moved the Committee sponsor 20LSO-0211 v0.3, as amended. The Committee adopted the motion by a roll call vote with all members voting in favor of the motion. Chairman Perkins directed the bill to be numbered as a House Bill.

REVIEW OF REVENUE FROM STATE TRUST LANDS Review of Revenue from State Trust Lands Jason Crowder, Deputy Director, Office of State Lands and Investments, presented on state trust lands and the revenues generated from those lands through commercial development. He discussed opportunities available for specific parcels in Teton and Natrona County in order to generate additional revenue.

Consideration of Draft Legislation 20LSO-0071 v0.6 State trust lands-proposals and study. Representative Harshman presented an overview of 20LSO-0071 v0.6 State trust lands-proposals and study. (Appendix 9-01). He discussed state trust land that had been sold in the past and described the bill draft as a proactive approach to learn more about revenue generating options on state trust lands by requiring the Office of State Lands and Investments to solicit proposals.

Mr. Crowder testified on how the bill would be implemented and suggested the term "overriding royalty" should be amended. He noted his office would like to hire a consultant to assist with the proposal solicitation and plan required under the bill draft.

The Committee discussed state trust land parcels with land-locked minerals, potential changes to the Office of State Lands and Investments procedures, and the proposed timeline for reporting in the bill draft.

The Committee adopted the following amendments:

SELECT COMMITTEE ON CAPITAL FINANCING & INVESTMENTS Summary of Proceedings

Page 2-line 9 After "recreational" insert ", agricultural". Page 3-line 18 After “opportunities” delete "." and insert “;”. Page 3-after line 18 Insert: "(vi) Identify any resources including personnel necessary for the office of state lands and investments or other state agencies to implement the recommendations and opportunities identified in the plan. (c) The office of state lands and investments may engage the services of research and consulting firms to solicit proposals and prepare the proposed plan required by this section.". Page 3-line 22 Delete "overriding"; after "royalty" insert "or other income". Page 4-line 21 After "appropriated" insert "seventy-five thousand dollars ($75,000.00)". Page 4-line 23 After "of" delete the balance of the line. Page 4-line 24 Delete entirely.

Representative Harshman moved the Committee sponsor 20LSO-0071 v0.6, as amended. The Committee adopted the motion by a roll call vote (Senators Agar, Coe, and Kinskey voting “no”). Chairman Perkins directed the bill to be numbered as a House Bill.

20LSO-0079 v0.4 State mineral leases-market rates. Representative Harshman explained the current royalty rates paid by lessees for oil, gas, and coal extraction on state lands and he presented an overview of 20LSO-0079 v0.4 State mineral leases-market rates. (Appendix 9-02). He indicated the intent of the bill draft is to help determine the market rates for leases and ensure the State is paid those market rates for its mineral leases.

Mr. Crowder testified about prior and ongoing efforts by the Office of State Lands and Investments to review statutes and rules to improve the revenue generating capabilities of state trust lands.

Steve Degenfelder, Kirkwood Oil and Gas and Petroleum Association of Wyoming member, provided public comment and expressed concerns related to the bill draft.

TREASURER'S OFFICE REPORT Performance Compensation: Report by the State Treasurer's Office - W.S. 9-1-409(f): Report by the Wyoming Retirement Board - W.S. 9-3-406(d) Eric Nelson, Wyoming Retirement Board, David Swindell, Executive Director, and Sam Masoudi, Chief Investment Officer, Wyoming Retirement System, addressed the Committee and presented on investment returns, peer rankings, and hypothetical performance compensation scenarios for the Wyoming Retirement System. (Appendix 10-03).

Ms. Williams and Mr. Fleming provided an overview on the status of the State Treasurer's Office performance compensation plan. They indicated there were no results to report at this time as the performance compensation period had only taken effect in July. (Appendix 10-02).

Internal Investment Management and Accounting System Update Ms. Williams and Treasurer Meier addressed the Committee and provided an update on the State Treasurer's Office operations. Ms. Williams described the accounting issues her Office encountered at the end of the fiscal year and the impact of those issues. Ms. Williams indicated the Office recently contracted with Broadridge, Inc., to complete the year-end reconciliation and that the Office received authority to hire two new high-level accounting positions. She stated the State Treasurer's Office is also working with

SELECT COMMITTEE ON CAPITAL FINANCING & INVESTMENTS Summary of Proceedings

Clearwater Analytics related to investment accounting. Ms. Williams noted the impact the accounting issues have resulted in for the University of Wyoming’s external audit, the State’s comprehensive annual financial report (CAFR), and the Consensus Revenue Estimating Group (CREG), and reports issues by the State Treasurer’s Office. Ms. Williams noted that personnel changes have occurred as a result of the accounting issues and referenced the impact on investment results and the delays in the ability to execute trades during periods of the summer. Mr. Fleming summarized the estimated impact on investment earnings from those delays and responded to Committee questions.

OTHER REPORTS Mr. Sackett directed the Committee members to the State Treasurer's Office's reports on the following topics: Public Purpose Investments (Appendix 10-01), Evaluation of Risk of State Investments (Appendix 10-04), Investment Policy State and Performance for the Legislative Stabilization Reserve Account (Appendix 10-05), Master Investment Policy and Sub-Policies (Appendix 10-06), the Hathaway Student Scholarship Reserve Account (Appendix 10-07), and the Excellence in Higher Education Reserve Account (Appendix 10-08).

MEETING ADJOURNMENT There being no further business, Chairman Drew Perkins adjourned the meeting at 6:05 PM.

Respectfully submitted,

Senator Drew Perkins, Chairman

SELECT COMMITTEE ON CAPITAL FINANCING & INVESTMENTS Summary of Proceedings

Index Agenda Item Document Description Document Provider Number

1-01 Agenda LSO

1-02 Attendance Sign-in Sheets LSO

1-02 Call to Order Aug. 27 Meeting Minutes LSO

Intergenerational Equity: REVISED Intergenerational Equity Scenario 2-01 RVK Updated Scenarios Analysis

3-01 FY 2019 Investment Report Quarterly Investment Performance Analysis State Treasurer's Office

3-02 FY 2019 Investment Report Alternative Investment Supplemental Disclosure State Treasurer's Office

3-03 FY 2019 Investment Report Investment Outlook State Treasurer's Office

Spending Policy Modification 4-01 Spending Policy Recommendations State Treasurer's Office Recommendations - W.S. 9- 4-719(p)

Spending Policy Modification 4-02 Hypothetical 3.75% SPA Scenario State Treasurer's Office Recommendations - W.S. 9- 4-719(p)

Spending Policies and 6-01 History of Reserve Account Balances LSO Investments

Spending Policies and 6-02 Other State Reserve Accounts LSO Investments

Spending Policies and 6-03 20LSO-0212 v0.3 Reserve accounts-investments. LSO Investments

Spending Policies and 6-04 20LSO-0232 v0.4 PWMTF reserve account. LSO Investments

SELECT COMMITTEE ON CAPITAL FINANCING & INVESTMENTS Summary of Proceedings

8-01 Investment of Public Funds Investment Funds Committee Report State Treasurer's Office

8-02 Investment of Public Funds 20LSO-0154 v0.6 Investment of public funds. LSO

20LSO-0211 v0.3 Background checks-state 8-03 Investment of Public Funds LSO treasurer's office.

Review of Revenue from 20LSO-0071 v0.6 State trust lands-proposals and 9-01 LSO State Trust Lands study.

Review of Revenue from 20LSO-0079 v0.4 State mineral leases-market 9-02 LSO State Trust Lands rates.

10-01 Treasurer's Office Report Public Purpose Investments State Treasurer's Office

10-02 Treasurer's Office Report Performance Compensation Annual Report State Treasurer's Office

Wyoming Retirement 10-03 Treasurer's Office Report Performance Compensation Annual Report System

10-04 Treasurer's Office Report Risk Analysis State Treasurer's Office

10-05 Treasurer's Office Report LSRA Report State Treasurer's Office

10-06 Treasurer's Office Report Investment Policy State Treasurer's Office

10-07 Treasurer's Office Report Hathaway Reserve Account Report State Treasurer's Office

Excellence in Higher Education Reserve Account 10-08 Treasurer's Office Report State Treasurer's Office Report

SELECT COMMITTEE ON CAPITAL FINANCING & INVESTMENTS Summary of Proceedings

WYOMING LEGISLATIVE SERVICE OFFICE • 200 West 24th Street • Cheyenne, Wyoming 82002 TELEPHONE (307) 777-7881 • FAX 307-777-5466 • E-MAIL [email protected] • WEBSITE www.wyoleg.gov