Legislature(2003 - 2004)
04/07/2004 01:44 PM House FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 422
An Act repealing the special subaccount established in
the constitutional budget reserve fund; relating to the
powers of the Department of Revenue for the investment
of amounts in the constitutional budget reserve fund;
and providing for an effective date.
Co-Chair Harris commented that Minority Leader Berkowitz had
expressed concerns about this bill, and he asked if this
would merge accounts in the Constitutional Budget Reserve
(CBR).
JAMES ARMSTRONG, STAFF TO REPRESENTATIVE WILLIAMS explained
that this would repeal the law enacted in 2000 by Senator
Torgerson that created a subaccount within the CBR of $400
million. The subaccount has a long-term investment horizon
of five years and the goal is to capture a higher yield.
Co-Chair Harris asked if that has occurred. Mr. Armstrong
affirmed that there has been a higher yield over the past 6
or 7 months. Co-Chair Harris asked about the historical life
of the separate fund. Mr. Armstrong replied that it hasn't
made as much as had been anticipated, perhaps $20 million.
TOMAS BOUTIN, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE
(DOR), discussed the returns of the subaccount and the main
fund of the CBR, referring to information he had provided to
the committee.
TAPE HFC 04 - 79, SIDE B
Co-Chair Harris asked, with the subaccount invested more
liberally, which account has earned more. Mr. Boutin replied
that the subaccount hasn't existed for 5 years. The 3- year
timeframe shows an earned rate of 1.8% return for the
subaccount, while the main fund has earned around 6%. The
strong recovery in equities over the past year has pulled
the Fund back into "the black." He explained that
fundamentally, the way the CBR has been used doesn't suggest
a long-term investment horizon or anything but the fixed
income investments of the type in the main Fund.
Co-Chair Harris asked if the DOR anticipates not less than
$1 billion would remain in the Constitutional Budget
Reserve. Mr. Boutin said that is correct. Co-Chair Harris
asked the current balance in the CBR for a draw this year.
Mr. Boutin explained that the Department uses the CBR as a
checking account that is repaid from the General Fund. The
CBR draw at the end of this fiscal year would be $50
million, if the average daily price of oil continues upward
and oil is higher than the spring forecast on which the FY
05 budget is based.
Co-Chair Harris asked if oil is averaging $29 per barrel
this year. Mr. Boutin clarified that it is about $30.60 per
barrel for the fiscal year to date.
Representative Foster asked the net to the state treasury
when the oil price increases one dollar for the year. Mr.
Boutin said that he used "a rule of thumb" of $65 million,
which is fairly accurate.
Co-Chair Williams questioned putting in a trigger to keep
the CBR working. Mr. Boutin expressed that if the entire CBR
had been put into equities a year ago, there wouldn't be a
problem today, but market timing is not a strategy for
public funds, which follow fundamental investment
principles. Even with agreement that the Constitutional
Budget Reserve could not fall below $1 billion, about $300-
400 million would be needed for revenues and expenditures
each year, and the balance of $600 million would be needed
for the oil price plummet that will ultimately occur. He
argued that this suggests a fixed income investment, rather
than a long-term investment of real estate or equities.
Representative Croft discussed the concept of a trigger and
switching between investment strategies. He thought that
with the diminishing Constitutional Budget Reserve, it is
almost imperative to repeal the subaccount.
Co-Chair Harris commented that the Legislature is
anticipating nearly a $400 million draw from the CBR this
year. Representative Croft replied that although technically
$400 million was withdrawn, all of it would not be needed if
oil prices hold steady for another few months. He thought
that it has become more of a legal question of whether the
Majority had the authority for the CBR draw, and it is
almost moot with the current oil prices.
Co-Chair Williams asked for a comparison of how much the
subaccount lost last year in relation to the main CBR. Mr.
Boutin referred to the table, "Constitutional Budget Reserve
Subaccount" (copy on file). In response to a question by
Mr. Armstrong, Mr. Boutin clarified that it is current
through 12-31-03.
Mr. Boutin stated that even if there had not been a bear
market and these equities were doing well, the fundamental
investment principles used by DOR and other state agencies
argue for not having this long-term investment horizon.
Co-Chair Harris MOVED to report CSHB 422(STA) out of
Committee with the accompanying fiscal note. There being NO
OBJECTION, it was so ordered.
CSHB 422(STA) was REPORTED out of Committee with a "do pass"
recommendation and with one previously published fiscal
impact note.
| Document Name | Date/Time | Subjects |
|---|