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More than 150 people attended an auction over the weekend at which the state Department of Lands auctioned off 21 cabin sites at Payette Lake on which renters have built cabins or homes; 20 of the 21 sold to the current renters. The other lot sold for $42,000, or $5,000 above the appraised value of the land; the purchaser also will be required to pay the appraised price for the improvements to the former renter.
The auctions were for the land only; they took in a total of $6.07 million for the state endowment fund, which benefits state institutions including schools. All but three of the lots sold for appraised value to the current renter with no competitors bidding; the competitive bidding on the other three brought in an additional $33,200 over the appraised values. You can read a full announcement here from the state Department of Lands. The renters of the 21 lots voluntarily joined the auction in hopes of getting title to the property under their cabins, though they also risked being outbid; the state is trying to get out of the cabin-site renting business and into more profitable investments for the endowment. The lots auctioned included six on the lakefront.
Idaho’s state Land Board has voted 4-1 to keep the endowment distribution for public schools next year at $31.3 million, the same level as this year, with only state Schools Superintendent Tom Luna objecting; you can read my full story here at spokesman.com. Luna made an impassioned plea to raise the payout for schools to $37 million, saying the number of students has risen but the endowment distribution has been frozen at the $31 million level for the past four years.
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, to keep growing reserves in the school fund toward the goal of covering five years of payments, in order to weather ups and downs in land and fund investments in the future. He said the endowment board makes distribution decisions 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. Gov. Butch Otter seconded Luna’s motion “out of respect” so it didn’t die for lack of a second, but voted against it.
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.”
Gov. Otter said, “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. So as quick as I can get that to five years, then I can be a lot more generous.” He told Luna, “But I want to tell you I really appreciate the efforts that you and your department have put into it, because it is impressive. And maybe it does beg for change, but not exception.”
After voting down Luna’s substitute motion, the board approved the investment board 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.
The state Land Board is meeting this morning; a major agenda item is the distribution from the state endowment for public schools next year. Last month, state Superintendent of Schools Tom Luna pushed to increase the distribution by $5.6 million above the recommendation of the state’s Endowment Investment Board. His motion died for lack of a second, but the board then agreed to send Luna’s proposal to the endowment board for review, and reconsider the issue this morning.
The endowment board is proposing holding schools at $31 million, the same distribution as the past four years, to help reserves in the school fund built up toward targeted levels. Since the Land Board in 2010, at Luna’s urging, voted to give schools a one-time additional $22 million distribution, the reserve fund for the schools hasn’t met the goal of holding five years worth of payments; it’s now just over three years and dropped to two years after the 2010 extra payment.
The endowment board this morning is again recommending sticking with the $31 million distribution to schools for fiscal year 2015, which starts July 1, 2014.
Political fireworks flew at the state Land Board this morning, as, for the second time in five years, state schools Superintendent Tom Luna sought to increase the endowment distribution to public schools beyond the recommendation of the Endowment Fund Investment Board. The board is recommending fiscal year 2015 distribution increases to seven of the eight endowments, but not to the largest – public schools – instead holding schools at the $31 million distribution level it’s been held at for several years. The reason: Since the 2010 board decision to give schools a one-time additional $22 million distribution, the reserve fund for the schools hasn’t met the goal of five years worth of payments; it’s now just over three years, and dropped to two years after the 2010 extra payment.
But Luna said the recommendation means departing from the board’s policy of distributing 5 percent of the three-year rolling average of the endowment to the schools each year, and would drop schools next year to about a 4 percent distribution. Aside from the $22 million one-time boost, schools have been held at the $31 million level for five years now, Luna said, even as the number of public school students has grown by 15,000.
“We’ve never had to reduce the balance of the reserve in order to meet distributions,” Luna argued. “And we just went through the worst recession that I think we’ve seen. And now we see a recovery. So I would argue that we should distribute the 5 percent of the rolling three-year average, per our policy. We still increase the amount in reserve in the years going forward. … It would mean an increase in the distribution of about $5.6 million.”
Luna said school districts are suffering now. “I guess what concerns me is that while we’re building our reserve, school districts are depleting theirs, and … many of them have no reserves left at all. They literally go from state distribution to state distribution.”
Luna made a motion to grant the increase, but it died for lack of a second. Gov. Butch Otter said he just heard Luna’s proposal last night. “I’d like to see us delay it at least until the September board meeting,” he said. Luna responded, “I did sent you a letter Friday – I know you were putting out fires.” (You can read Luna's letter here, obtained under the Idaho Public Records Law.)
Attorney General Lawrence Wasden said, “A number of years ago we addressed this issue, and really, it was part of a political ambush that was unleashed on the Land Board. And at that time my view was that we needed to send this matter to the Endowment Fund Investment Board for their analysis and report back to us.” Wasden said for the Land Board to exercise its fiduciary duty to the endowment, as required by the state Constitution, it’s incumbent on the board to get the investment board’s input before making such a decision.
Secretary of State Ben Ysursa recalled “the way we agonized over the $22 million,” and noted that the 2010 extra payment was actually his motion – Luna had wanted more than twice that amount. “I reiterated that was a one-time deviation from the recommendation of the endowment fund,” Ysursa said. “That term ‘one-time’ continues to stick in my mind. But I think the superintendent has raised some good points.” He noted that the 2010 decision was a tense 3-2 vote.
Luna responded, “If I understand the motion, maybe not all the rhetoric that went with it, it’s that we will approve the distributions for all but public schools, and public schools we will set a distribution at our September meeting.” Wasden responded, “That is correct.”
Luna said he’s proposing sticking to the state policy, regarding a 5 percent distribution of the rolling three-year average, not violating it. But Ysursa noted that there’s also a policy targeting 5 years worth of distributions as the reserve level. “We’ve got two competing policies, is what’s going on,” he said.
The board then voted unanimously for Wasden’s motion, putting off the decision on the public school distribution to its September meeting.
Idaho’s state Land Board has voted unanimously to set distributions from the state’s permanent endowment to public schools and other endowment beneficiaries for next year at this year’s level, less the special, one-time extra distribution of $22 million to public schools this year. That means overall distributions will be down 32 percent and public school distributions will be down 41.3 percent, dropping from a total of $53.3 million this year to $31.3 million next year. But if you set aside the special $22 million allocation this year, the total distributions actually rise by 0.6 percent.
Gov. Butch Otter asked Larry Johnson, manager of investments for the endowment fund, “Is there any way we can measure the effect of taking that $22 million out? I mean, for historical purposes - we’ve done it. … If we’re tracking it we can look back on it in years to come … know what our overall cost is.” Johnson replied that that will depend on the endowment fund’s earnings. For example, if the fund earns 15 percent, the cost would be 15 percent of $22 million. If the fund were flat, the cost would be zero. Said Otter, “I just think it would be valuable for us to know … what the effect of that was, should we ever be faced with that situation again.”
Johnson submitted pages of charts and analysis from the Endowment Fund Investment Board to the Land Board showing that holding the distributions even, but for the $22 million, would be “prudent” given the various endowment funds’ earnings. Continuing the $22 million in fiscal year 2012, however, would not, he said. In four of the endowments - not the major one, which is for public schools - earnings have actually built up beyond five years’ worth of distributions in the reserve funds, and the investment board recommended a transfer from those funds back into the permanent fund, as prescribed by its investment plan. “The recommended distributions and transfers appear to be achievable and represent an appropriate balance between the interests of current and future beneficiaries,” said the report from the endowment board.
Attorney General Lawrence Wasden made a motion to approve the recommendation, Controller Donna Jones seconded the motion, and the vote was unanimous - including from state Superintendent of Schools Tom Luna, who was participating by phone. Luna, who pushed for the $22 million extra distribution for schools this year - and who actually wanted twice that amount - made no comment this time. Idaho’s endowment fund had a 5 percent gain in July, the first month of the fiscal year.