Paper by Margaret R. Bird
Investing authorities often use benchmarks to chart their returns against. A benchmark is a standard of excellence, against which similar things [investments] must be measured or judged. The investing authorities for the permanent school funds in various states use different benchmarks to track their investments by category. The benchmarks utilized by Utah are as follows:
Fixed Income:Capital gains and losses are handled differently in the various states. Utah retains all realized capital gains as principal. They reinvest the capital gains, thus over time providing greater levels of funding for schools, all other things being equal.
Both New Mexico and Utah adopted statutory changes to get rid of the laundry list of acceptable investments for the permanent school fund during the 2006 legislative session. In both states, the statute was modified to adopt the prudent investor rule as the standard of care to be employed when investing the permanent school funds.
The interest and dividends from the investment of the $38 billion of permanent funds is dedicated to education in each state, but from that point the similarities cease. Most of the states put the interest and dividends into the education funding pot along with other dedicated and general fund revenues. The trust dollars lose their identity in these states as they flow out to schools with few if any educators even being aware of their contribution. Of the state dollars that flow to education, the school trust funds contribute anywhere from fourteen percent in New Mexico ($392 million) to just over one percent in Colorado. If land commissioners, state treasurers or state investment boards, or educators push for more productive and profitable uses of the school land and of investments of the permanent funds, the dollars generated simply supplant other educational funding sources, generally resulting in no additional dollars to schools. Until legislators and educators solve the supplanting problem, the trust lands and funds cannot affect school children positively.
Some states have been able to direct these dollars to avoid the supplanting problem. In Wisconsin the interest and dividends go to provide the books for school libraries. In Washington, the proceeds from the Washington Permanent Common School Fund are dedicated to building schools. In Arizona, the proceeds from the lands and funds are capped at $72 million for on-going education needs with the overage going to the Classroom Site Fund to pay teacher bonuses, provide professional development, provide aides, and other needs in the classrooms. In Utah, the funds are directed proportionate to student population to each school to address each school's most pressing academic need. Parents, teachers, and the principal decide how to improve student performance in the chosen academic area and use the funds to pay for tutors, teach English as a second language, purchase math and reading software, purchase books and microscopes and computers, and reduce classroom size. Remediation classes, college entrance test preparation classes, accelerated classes, and special educational opportunities are all purchased with these dollars. Because each district or school implements a different plan in Arizona and Utah, the trust dollars do not supplant other dollars and the education of children is enhanced.
The 45 million acres of school trust lands are an important but dwindling asset of schools in nineteen western states. These lands and the funds generated therefrom are held in trust by each state for the benefit of schools. A portion of the proceeds from these lands have been deposited in permanent school funds that now invest over $38 billion dollars for schools. The names of the funds vary as do the investing authority. Returns from these investments vary substantially. Those funds that are more visibly watched and those funds that are invested by sophisticated, knowledgeable investment boards generated greater revenue for schools during the period of this study. Beneficiaries should be concerned if the book value (costs) of the investment of their permanent funds is not being closely followed and reported. It is important to know what return is generated from the permanent school fund. An increase of a few percentage points from better investments can make an enormous difference in the distributions to schools and in the growth of the fund. Well informed beneficiaries in a state can help these funds enhance education rather than supplant other funding sources.
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