Playing fast and loose with state funds 
Released March 2004 

           Some folks might have overlooked the defeat of S.B. 121, a proposal that would have granted far greater latitude to what the Investment Management Board does with our taxpayer dollars.
        I followed the bill’s journey, right up to its demise in the House finance committee. That is one death that called for no mourning.
 For background purposes, state residents voted in 1997 to pass a constitutional amendment allowing the state to invest in the stock market. The Legislature then set a cap on such investments at 60 percent.
       That ratio, by and large, has served the state well. But despite somewhat good returns, we still face well documented financial troubles.
       For instance, we suffer from a $4.2 billion hole in our teachers’ retirement system, one the governor wants to fill through the sale of general obligation bonds. I don’t like the idea of borrowing our way out of debt and am fighting it in court, but that’s another story.
      Or is it? Allowing the outside-of-state-government Investment Management Board to put our money in all manner of speculative investments is, in a simple word, dangerous.
      Risky investment losses certainly don’t aid our ability to close budget holes, including the gaping one in the teachers’ retirement system.
      S.B. 121’s purpose was “to broaden the authority of the Investment Management Board.” “Broaden” is the key word here. The bill attempted to increase, and in most cases effectively remove, current limits on the amount of state and pension money invested in stocks and would have authorized up to 10 percent of the money for “alternative investments.”
      Examples include venture capital loans and bankrupt companies.
      Venture capital loans are by nature a risky business. People out there need funds for all the wonderful business ideas they think will make them and their investors rich.
      Some ideas work. More than half don’t. Are those the odds with which an already poor state should be content?
      Bankrupt companies would be another option at the IMB’s disposal. Now, without trying to sound too flippant, what’s wrong with this picture? Could these companies possibly be bankrupt for a reason?
      Would you invest your retirement savings in a bankrupt company? Not me.
      Risky investments carry both a high potential for return and loss. We should not be gambling with pension and Workers’ Compensation money. Actually, the state has no business gambling with any money – period.
      The 1997 amendment authorizing the state to invest in stocks called for the “Legislature to establish guidelines and procedures for the prudent investment of such funds.” I interpret this to mean that only the Legislature has the authority to establish guidelines and procedures for the state to invest in stocks.
      Today, all money belonging to pension funds, Workers’ Compensation and general state revenues are invested by a board created outside of state government, the IMB. I am only one of 13 members of that board and have not bought into the idea that the group should have almost unlimited authority to invest the money it manages.
      The 10 percent that could be placed in alternative investments equals about $600 million. Let’s think about this. The board could take $600 million and invest in such things as venture capital and bankrupt companies.
      If my office had investment power and gambled in that manner, I might be facing impeachment hearings. That raises another question. To whom does the IMB really answer?
      But back to gambling. We all know someone may hit the jackpot. Most folks just lose their money. This is not the first time legislation has cropped up authorizing alternative investments.
      Let’s make sure it’s the last.