Study Committee on Investment and Use of School Trust Funds Meets

The Study Committee on the Investment and Use of the School Trust Funds met for the first time on Aug. 16, 2018. The committee, chaired by Rep. Terry Katsma (R-Oostburg) and Sen. Lena Taylor (D-Milwaukee), is tasked with reviewing the investment process and loan programs under the Board of Commissioners of Public Lands (BCPL).

The first speakers at the meeting were BCPL Executive Secretary Jonathan Barry and Deputy Secretary Tom German. German briefed the committee on the history of BCPL and its current status. The BCPL staff explained that BCPL provides loans to municipalities with fewer fees, and shorter and simpler processes than private banks. BCPL offers loans at rates competitive with the private market with no prepayment penalties and gives municipalities the ability to restructure loans.

The BCPL staff said the school trust fund is growing at a slower pace because it is receiving less in fines and forfeitures and unclaimed property. They have recently begun using the process of “smoothing” that defers revenue from a good year to save for future challenging years.

Sen. Duey Stroebel (R-Saukville) asked the BCPL staff for recent audits of their work and inquired about BCPL’s liquidity and how they decide what loans to approve. Stroebel noted that the State of Wisconsin Investment Board (SWIB) has rates of return significantly higher than BCPL. (The BCPL staff argued that their statutory constrains require them to invest more conservatively than SWIB.) Stroebel authored a bill last session proposing elimination of the BCPL loan program and elimination of the requirement that trust funds be used solely for school libraries. The bill failed to pass.

Next, the committee heard from Wisconsin Educational Media and Technology Association (WEMTA). WEMTA discussed the importance of school libraries and their resources for increasing educational achievements and expanding broadband access, among other benefits to communities. They emphasized that BCPL’s school trust fund is the only dedicated state funding for school libraries, and many school districts have no additional funding beyond the BCPL trust fund. WEMTA noted that other states with no dedicated funding for libraries have underfunded libraries and emphasized the importance of consistent funds received from the BCPL trust fund program.

In response, Rep. Don Vruwink (D-Milton) agreed with the importance of maintaining consistent school library funding via the currently working BCPL trust fund program. Stroebel suggested the committee discuss further the potential benefits of allowing the funds to be distributed generally to school districts instead of dedicated to school libraries.

After a lunch break, a local government panel presented to the committee. The local administrators testified to the importance of BCPL in their communities and gave examples of projects that would not have been possible with the BCPL loan program. They said BCPL loans give municipalities more flexibility, a simpler process, tax dollar savings, and longer-term loans than the private market. Here, some committee members shortly diverged into a conversation about how levy limits could increase costs by forcing municipalities to borrow for projects they cannot afford with tax dollars alone.

State Treasurer Matt Adamczyk, a BCPL board member, was next to present. Adamczyk advocated against the loan program, arguing that BCPL should eliminate local government loans and turn toward more profitable investments to increase its rate of return and school funds. He further argued that BCPL should not compete with local private banks for municipal government business.

After Adamczyk, the committee heard from a panel of school board and district administrators. The panel said the current school trust fund program is working well, and school boards are okay with how the funds are currently dedicated to libraries. While school boards still use private banks for loans, the administrators testified that BCPL loans’ lower costs and simpler processes are often helpful to school districts seeking loans.

Finally, the committee heard from Secretary of State Doug La Follette, also a BCPL board member. La Follette discussed the role and importance of the BCPL trust fund and loan programs and gave further information on how BCPL works.

The next study committee meeting will take place on Sept. 5. Future speakers may include: an economic development group, community financial institutions, the University of Wisconsin system, SWIB, Common Fund Institute, and a law professor who would discuss statutes around investment policy.

Committee members and documents