The Study Committee on Investment and Use of School Trust Funds met for the second time on Sept. 5. The meeting focused on how and by whom the school trust fund should be managed. Areas of interest to committee members included adopting new strategies to increase the fund’s returns and reexamining the Board of Commissioners of Public Lands’s (BCPL) loan program for municipalities.
First on the agenda, Cathleen Rittereiser, executive director of the Commonfund Institute, gave the committee a brief history of endowment investing and shared best practices for investment oversight boards and staff and their policies.
Next, the State of Wisconsin Investment Board (SWIB) briefed the committee on what funds they manage and how they manage them. SWIB representatives noted that they would not necessarily earn more returns on investments than BCPL if they managed the fund because constitutional restraints on BCPL’s management of the fund are incomparable with any funds SWIB currently manages. In response to a question from committee member Steve O’Malley (representing La Crosse), SWIB said they would not have the infrastructure to administer the BCPL loan program. If the fund was transferred to SWIB, they could potentially have a third party administer the municipal loans, but they would have to examine the cost efficiency of hiring an outside administrator.
After SWIB, the Wisconsin Bankers Association testified that banks want to make loans to municipalities and that the state’s BCPL loan program should be a “lender of last resort.” While they acknowledged the state should not get rid of the BCPL loan program altogether, they advocated for a solution that encourages municipalities to use local banks more and the BCPL loan program less.
Next, the committee heard from local government representatives from West Allis and the Town of Scott. The local governments reiterated arguments from previous committee testimony about the importance of flexible, long-term, limited risk BCPL loans, especially in the context of local economic development projects. A public finance municipal advisor testified next and echoed the local governments’ perspective on the importance of retaining BCPL loans as an option for municipalities engaged in economic development projects.
Following the local government representatives, the University of Wisconsin System made a brief presentation on how they use the funds.
After all the presenters had finished, committee Chairman Rep. Terry Katsma (R-Oostburg) laid out three areas of discussion for the committee to explore:
- Changes to the BCPL loan program
- Transfer of school trust fund to SWIB
- Guide for fund management
Many committee members, including Katsma, seemed to agree that the legislature should not eliminate the BCPL loan program. Sen. Duey Stroebel (R-Saukville) said the state does not necessarily need to throw out the loan program, but it “needs attention.” (Stroebel was the author of a bill from last session that would have eliminated the program, and Katsma was a cosponsor.) Sen. Lena Taylor (D-Milwaukee) argued that, instead of relying on a legislative fix, banks should market themselves better to compete with BCPL’s loans. Stephen Eager, who represents local banks on the committee, acknowledged that local banks need to reach out more to municipalities for potential loans but also suggested that federal and state regulations prevent private banks from providing the same simple loans as BCPL. Committee members seemed willing to explore simplifying state regulations for private banks loaning to municipalities.
Some committee members suggested finding a balance between BCPL and local bank lending to municipalities, potentially by requiring municipalities to explore all other options before signing a loan with BCPL. Local government representatives on the committee had hesitations about this potentially burdensome requirement.
Committee members were also interested in possibly using endowment model best practices from Commonfund to increase the school trust fund’s returns. Overall, there was a consensus that the shared goal is to increase funds for schools.
Legislative Council plans to compile a memo with options for the committee to consider, and the committee will meet again on Oct. 11.