HOUSE BILL REPORT

SHB 1284

As Passed Legislature

Title: An act relating to creating the capacity for the state treasurer's office to provide separately managed investment portfolios to eligible governmental entities.

Brief Description: Creating the capacity for the state treasurer's office to provide separately managed investment portfolios to eligible governmental entities.

Sponsors: House Committee on State Government & Tribal Relations (originally sponsored by Representatives Vick, Kirby, Reeves, Volz, Kilduff, Ryu, Stanford, Dolan, Frame and Jinkins; by request of State Treasurer).

Brief History:

Committee Activity:

State Government & Tribal Relations: 1/29/19, 2/8/19 [DPS];

Appropriations: 2/26/19, 2/27/19 [DPS(SGOV)].

Floor Activity:

Passed House: 3/5/19, 98-0.

Passed Senate: 4/17/19, 47-0.

Passed Legislature.

Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 9 members: Representatives Gregerson, Chair; Pellicciotti, Vice Chair; Walsh, Ranking Minority Member; Goehner, Assistant Ranking Minority Member; Appleton, Dolan, Hudgins, Mosbrucker and Smith.

Staff: Jason Zolle (786-7124).

Majority Report: The substitute bill by Committee on State Government & Tribal Relations be substituted therefor and the substitute bill do pass. Signed by 31 members: Representatives Ormsby, Chair; Bergquist, 2nd Vice Chair; Robinson, 1st Vice Chair; Stokesbary, Ranking Minority Member; MacEwen, Assistant Ranking Minority Member; Rude, Assistant Ranking Minority Member; Caldier, Chandler, Cody, Dolan, Dye, Fitzgibbon, Hansen, Hoff, Hudgins, Jinkins, Kraft, Macri, Mosbrucker, Pettigrew, Pollet, Ryu, Schmick, Senn, Stanford, Steele, Sullivan, Sutherland, Tarleton, Tharinger and Ybarra.

Staff: Jessica Van Horne (786-7288).

Background:

The Office of the State Treasurer (OST) administers a trust fund ("the pool") alternatively called the Public Funds Investment Account (by statute) or the Local Government Investment Pool (by OST rules). The pool consists of money deposited by the State Treasurer and any counties, municipalities, political subdivisions, state agencies, or tribes that are authorized to invest money in the pool. Because most state agencies lack statutory authority to invest their funds, the pool is primarily used by local governments. Institutions of higher education generally have statutory investment authority and use the pool as well.

To participate in the pool, these governmental entities must agree to contribute or withdraw funds in accordance with OST rules. Each participant in the pool maintains a separate account, and the OST provides pool participants with monthly statements.

There are two subpools in the pool: a money market fund (MMF), and an extended asset fund (EAF). Funds in the MMF are invested in money market instruments, which are generally borrowed and loaned, or bought and sold, on a short-term basis with short maturity dates. Money is available in the MMF subpool for same-day withdrawal, although requests to withdraw more than $1 million are subject to the discretion of the OST.

Investments in the EAF generally have a longer maturity date. Governmental entities may not deposit money directly into the EAF—contributions to the EAF may be made only after a corresponding withdrawal from the entity's MMF account. Currently, the EAF is not in use.

The OST is responsible for investing the funds in each subpool to maximize their yields, using due care and considering both probable income and probable security. All earnings on the money in the pool are credited back into the pool. The costs of operating the pool are reimbursed by pool participants on a prorated basis.

The OST is authorized to employ personnel as needed to administer the pool. At the end of each fiscal year, the OST must submit a review of pool activity to the Governor, the State Auditor, and the Joint Legislative Audit and Review Committee.

Summary of Substitute Bill:

The OST may enter into agreements with eligible counties, municipalities, political subdivisions, state agencies, or tribes who are authorized to invest their funds to create a Separately Managed Account (SMA) to be invested in one of two new trust funds.

One of the new trust funds is the Separately Managed Public Funds Investment Account (PFIA). The PFIA includes funds deposited by eligible governmental entities that are not state agencies. The other new trust fund is the Separately Managed State Agency Investment Account (SAIA). The SAIA includes funds deposited by eligible state agencies.

The OST deducts a service charge from an entity's investment earnings to pay for the SMA investment program.  Those fees are deposited into the newly created Separately Managed State Treasurer's Service Account.  That account is not subject to appropriation or allotment; the only expenditures permitted are to pay for the SMA investment program.

Unlike the existing pools where the OST rules govern investments and withdrawals, each governmental entity with an SMA enters into an agreement with the OST that contains provisions relating to the time period for investments, payment for services, and withdrawing funds. The agreement must include service charges so that the administration of the SMA does not result in costs to the state. The OST is responsible for investing the funds, using due care and considering both probable income and probable security. The OST is also required to consider the public policies of Washington and the values of its citizens when making investment-related decisions.

The OST is authorized to employ personnel as needed to administer the new trust funds.

Appropriation: None.

Fiscal Note: Available.

Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed.

Staff Summary of Public Testimony (State Government & Tribal Relations):

(In support) The goal of this bill is to allow local governments to invest in long-term funds with the OST.  State agencies currently can invest in long-term funds with the OST, but local governments can invest only in short-term funds.  Investing with the OST allows local governments to take advantage of the OST's investment expertise and full-time employees.  Over 500 entities participate in the current short-term investment program.  This program pays for itself because each entity pays for the investment services.  The OST is satisfied with the results of the pilot project with Pierce County.  There may be a private market for this service, but this bill simply permits local governments to invest with the OST—they are not required to do so.

(Opposed) None.

Staff Summary of Public Testimony (Appropriations):

(In support) The Office of the State Treasurer (OST) currently offers the Local Government Investment Pool as an investment option for local governments, which currently serves around 500 entities. This bill will create a portfolio program option for local governments. Entities will be able to contract with the OST for longer-term, fixed-interest, separately managed portfolios. Through the program, local governments can take advantage of the OST's investment expertise. This provides an alternative for local governments, in addition to contracting with third parties or managing their own investments.

(Opposed) None.

Persons Testifying (State Government & Tribal Relations): Representative Vick, prime sponsor; and Catherine Mele, Office of the State Treasurer.

Persons Testifying (Appropriations): Catherine Mele and Shawn Meyers, Office of the State Treasurer.

Persons Signed In To Testify But Not Testifying (State Government & Tribal Relations): None.

Persons Signed In To Testify But Not Testifying (Appropriations): None.