HOUSE BILL REPORT

HB 1910

BYRepresentatives Schoon, Vekich, Winsley, Fuhrman, Wineberry and Ferguson

Requiring the state investment board to make investments in profitable in-state investment opportunities.

House Committe on Trade & Economic Development

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass. (15)

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

Minority Report:  Do not pass. (2)

      Signed by Representatives Beck and Heavey.

House Staff:Bonnie Austin (786-7107)

AS REPORTED BY COMMITTEE ON TRADE & ECONOMIC DEVELOPMENT

FEBRUARY 1, 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 funds to increase investment in certain types of enterprises or geographic area, 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 (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 board to encourage additional in-state investment in the pursuit of its legislatively mandated purpose, which is to provide professional investment management of trusts, operating funds and capital funds.

SUMMARY:

SUBSTITUTE BILL:  The State Investment Board shall invest in profitable in-state investment opportunities.  At lease one percent of the aggregate of the funds that the board invests shall be invested in profitable in-state investments.  The board shall 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.

The prudent investment of the funds under the management of the board remains the purpose of the board.  The board 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 board.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  The substitute bill deletes a provision in the original bill requiring that no more than two percent of the board's investment be in in-state developmental investments.

Fiscal Note:      Requested February 1, 1988.

House Committee ‑ Testified For:    None Presented.

House Committee - Testified Against:      John Hitchman, State Investment Board.

House Committee - Testimony For:    None Presented.

House Committee - Testimony Against:      Almost five percent of the board's investments are currently in-state, so the bill is unnecessary.  It also conflicts with the board's fiduciary responsibilities.