September 17, 2013 in Idaho

Idaho Land Board won’t back Luna to up endowment payout to schools

By The Spokesman-Review
 
Betsy Russell photo

State schools Superintendent Tom Luna at Tuesday’s Land Board meeting
(Full-size photo)

BOISE – Idaho’s state schools chief, Tom Luna, failed to persuade any of his fellow state elected officials on the Land Board Tuesday to boost the payout to Idaho schools next year from the state’s permanent endowment.

Luna, who was outvoted 4-1, argued that Idaho’s schools are hurting from budget cuts, and costs are rising due to everything from a growing student population to looming school reform proposals – but the endowment payout to schools has been frozen for the past four years. The Land Board, which is chaired by Gov. Butch Otter, oversees the state endowment.

Endowment fund officials say the freeze has come because the school endowment is still well below the recommended reserve level of five years’ worth of payments. Three years ago, Luna persuaded the Land Board to make an extra $22 million payout to schools, which further cut into reserves; the reserves are now at less than four years worth of payments.

He proposed that next year, instead of getting the same $31.3 million, schools get $37 million.

“As state superintendent but also as a land commissioner, I consider … all sources of revenue as we try to figure out the best scenario in order for our schools to be successful,” Luna said.

Larry Johnson, investment manager for the Endowment Fund Investment Board, presented a detailed analysis of Luna’s proposal, and said the endowment board still recommends sticking with the $31 million figure. He said the endowment board makes distribution recommendations based on the financial condition of the fund - not on the beneficiaries’ requests.

Luna offered a compromise proposal to boost the payment to schools next year to $34 million, saying that way, the reserve fund wouldn’t fall – it would grow by $3 million, and remain at 3.9 years of payments. “I’m not asking that we reduce the amount of the reserve funds in order to increase distributions,” he said. “I’m making the case that we can do both, and we need to do both.”

Idaho Secretary of State Ben Ysursa said, “The more you take out of the reserves, the less you build up over the years, period. That’s where I’m coming from.”

Otter seconded Luna’s motion “out of respect” so it didn’t die for lack of a second, but voted against it.

“I can’t discuss this in a vacuum, without considering our goal and … our confidence in sort of our safety level, and that’s at five years,” Otter said. “So as quick as I can get that to five years, then I can be a lot more generous.”

Luna presented charts and tables showing that the reserve fund has grown by 900 percent since 2001, while the payout to schools has dropped 30 percent from that year’s level. But Johnson told the board, “In ‘01 and ‘02, we were distributing more than the assets could support, so at some point there had to be reductions.”

Johnson said the top priority in setting distributions from the endowment is to avoid year-to-year reductions. The second priority is to maintain adequate reserves to cushion investment ups and downs; and the third is to grow both distributions and the permanent fund faster than inflation and the state’s population growth.

After voting down Luna’s substitute motion, the five-member board approved the investment board’s recommendation with just Luna objecting, but at Attorney General Lawrence Wasden’s urging, it added two additional provisions, which Luna backed: It called on the investment board to complete a review of its investment and distribution strategy for the endowments, including the five-year target for the reserves; and it asked state Lands Director Tom Schultz to conduct a similar review for the lands portion of the state endowment, including reviewing strategies such as moving into commercial property investments in addition to the traditional timber and grazing land.

Wasden said the reviews are critical. “I think this discussion really is at the heart of what we as a Land Board have the responsibility to do,” he said.

The board is charged by the state Constitution with managing the endowment for the maximum long-term return to the beneficiaries, the largest of which is the schools.

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