HOUSE BILL REPORT

HB 1436

BYRepresentatives Vekich, Wineberry, Schoon, Cantwell, Winsley, Kremen, Rasmussen, Heavey, Grant, Hargrove, Spanel, Bristow, Crane, Anderson, Meyers, Valle, Sanders, Rayburn, K. Wilson, Basich, Moyer and Cooper

Requiring investigation of state investment by the state investment board.

House Committe on Trade & Economic Development

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (17)

      Signed by Representatives Vekich, Chair; Wineberry, Vice Chair; Amondson, Beck, Cantwell, Doty, Fox, Grant, Heavey, Holm, Kremen, McLean, Moyer, Rasmussen, Schoon, B. Williams and J. Williams.

House Staff:Stephen Hodes (786-7092)

AS REPORTED BY COMMITTEE ON TRADE & ECONOMIC DEVELOPMENT

JANUARY 15, 1988

BACKGROUND:

The increased involvement of the state economy in the international economy, the dramatic shifts in financial markets, and the deregulation of the banking system have impacted the capacity of the state's capital markets to adequately meet the diverse financing needs of the communities and enterprises in the state.  Other states have utilized the depository authority of the state, state pension funds, regulatory guidelines, tax incentives, and the direct investment of state fund to increase investment in certain types of enterprises or geographic areas, or to increase the availability of capital of a particular type, such as seed capital or venture capital.

The financial characteristics of the trusts and capital funds managed by the State Investment Board include the requirements for long-term investment, investments which are low-risk, and the maintenance of diverse portfolios to ensure adequate return while ensuring the security of the funds managed by the Board.  These characteristics may permit the State Investment Board to encourage additional in-state investment in the pursuit of its legislatively mandated purpose.  The purpose of the State Investment Board is to provide professional investment management of trusts, operating funds and capital funds established by law.

SUMMARY:

SUBSTITUTE BILL:  The Business Assistance Center, established by the Legislature in 1987 in the Department of Trade and Economic Development, is directed to investigate profitable in-state investment opportunities which would match the characteristics of the funds managed by the State Investment Board.  The Business Assistance Center is also directed to develop a plan to increase the amount of profitable in-state investment undertaken by the Investment Board, consistent with the statutory purpose of the funds managed by the board.  The plan is to explore potential investments to be made during the first to fifth fiscal years following the submission of the plan.

The plan is also to include a report describing the types of investment in businesses in this state which will have the greatest likelihood of benefiting the economy.  That report is to examine the potential for the Investment Board to act as a developmental investor, focusing on:

            Othe types of investments best-matched to the financial characteristics of the funds managed by the state investment board.  These should include investments which are long-term, in which the risk of loss is minimized, and which serve to retain a prudent portfolio diversity.

            Oinvestments which would increase net investment in the state and which would not primarily replace existing investments in the state.

            Oinvestments which would serve to leverage additional investments in the state.

            OThe bill states that the prudent investment of the funds under the management of the state investment board remains the purpose of the state investment board, and directs that the report should not investigate those types of investments which would promote the economy of the state at the expense of the prudent investment of those funds under the management of the state investment board.

The plan is also to include proposed nonbinding management objectives for each fiscal year for in-state investments.  It should also include recommended actions to help the board meet its management objectives.

The Business Assistance Center is directed to report the results of the investigation and plan to the State Investment Board.  The Business Assistance Center and the State Investment Board are directed to report the results to the Legislature by January 1, 1989.  The board is directed to submit a plan for making investments in the state by January 1 of each odd- numbered year, beginning in 1991.  The plan is to be developed in conjunction with the Business Assistance Center.  The plan should focus on developmental investments that would increase net investment in the state without replacing existing in-state investments.  The Board is not obligated to act on a portion of the plan if it is not consistent with the primary purpose of the Investment Board to provide professional management of the funds under its stewardship.

The existing quarterly reports submitted by the State Investment Board are to include the amounts and categories of investments described and progress in meeting the objectives of the plan.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  The Business Assistance Center is directed to prepare the initial report and plan.  Under the provisions of the original bill, the State Investment Board was directed to contract with the Business Assistance Center.  The Business Assistance Center is directed to report to the State Investment Board and both are directed to report to the Legislature.  Under the original provisions, the State Investment Board was directed to report to the Legislature.

Fiscal Note:      Requested January 18, 1988.

House Committee ‑ Testified For:    David Dougherty, Department of Trade and Economic Development.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    Other states have investigated profitable in-state investments, which do not involve the risk of loss and which increase net in-state investment. Such investments are available and can be utilized without compromising the independence of the Investment Board or the security and return on investment of the funds and trusts it manages.

House Committee - Testimony Against:      None Presented.