Study Committee on School Trust Funds Discusses Next Steps

The Study Committee on Investment and Use of School Trust Funds met at the state capitol on Oct. 11 to hear from several presenters and to discuss next steps for the committee.

The meeting began with presentations from the Idaho Endowment Fund Investment Board’s manager of investments, who discussed how Idaho updated its constitution to allow for more flexible investments. In response to a question from committee chair Rep. Terry Katsma (R-Oostburg), the investment manager indicated the Idaho board does not make loans to municipalities.

Next, the Wisconsin Department of Revenue (DOR) briefed the committee on the collection of unclaimed property, a percentage of which is ultimately deposited into the school fund.

Following DOR, a professor from Oregon School of Law gave the committee an overview of evolving prudent investor standards and uniform trust laws across states. Then, a finance professor from University of Wisconsin-Madison gave the committee his take on the current Board of Commissioners of Public Lands (BCPL) investment program. He said BCPL’s municipal loan program should stay in place because it provides a benefit to small municipalities while still benefitting BCPL’s portfolio.

After the presentations, the committee spent the afternoon discussing next steps. Sen. Duey Stroebel (R-Saukville) said he wants to continue the loan program, but the state needs to make changes to the overall BCPL investment model. Other committee members agreed that they should explore diversifying BCPL’s funds and provide it more flexibility to increase returns.

Topic areas discussed by the committee included:

  • Private bank regulations. The banks’ representative on the committee advocated for more statutory flexibility for banks to compete with BCPL for municipal loans. Specifically, he wanted to explore reducing documentation requirements and eliminating the 10 year limit on municipal loans from private banks. The committee approved a motion to have Legislative Council prepare draft legislation on eliminating the 10 year limit in Wis. Stat. § 67.12(10) for the next committee meeting.
  • Indexing BCPL interest rates. The committee briefly discussed this topic but came to no consensus or next steps.
  • Prepayment penalties. Municipalities argued that eliminating prepayment penalties for BCPL loans could cost taxpayers more money. However, Stroebel emphasized the primary duty of BCPL is to make as much profit as possible for the school fund.
  • Loan size limits. Municipalities pushed back on Stroebel’s push for limiting the size of BCPL loans to municipalities. Municipalities argued that BCPL makes mostly small loans without the state mandating it.
  • Pass through loans. Stroebel made a motion to have Legislative Council prepare draft legislation for the next committee meeting that would prohibit municipalities using BCPL funds for “pass through loans.” Pass through loans are when municipalities borrow from BCPL, then lend those funds to private corporations for economic development incentive purposes. Stroebel’s motion failed to pass.
  • Civil asset forfeiture. Committee vice-chair Sen. Lena Taylor (D-Milwaukee) was interested in requiring law enforcement to report and remit forfeiture funds available for deposit to the school fund on a regular deadline.

For the next meeting (Nov. 14), the committee plans to hear from BCPL on pass through loans, income from forfeitures, tax exempt versus taxable loans and income, and how they could improve overall fund investment. The committee will also review some draft legislation and consider whether they would recommend constitutional changes to BCPL’s current investment restrictions.

Committee members and documents

Summary of September meeting

Summary of August meeting