PUBLIC HEARING, SB 21, SB 22, SB 24

 

TAPES 17-18, A

 

SENATE REVENUE COMMITTEE

JANUARY 31, 2005 9:00 AM STATE CAPITOL BUILDING

 

Members Present:††††††††††††††††† Senator Ryan Deckert, Chair

††††††††††††††††††††††††††††††††††††††††††††††† Senator Charles Starr, Vice Chair

††††††††††††††††††††††††††††††††††††††††††††††† Senator Gary George

††††††††††††††††††††††††††††††††††††††††††††††† Senator Rick Metsger

††††††††††††††††††††††††††††††††††††††††††††††† Senator Floyd Prozanski

††††††††††††††††††††††††††††††††††††††††††††††† †††††††††††††††††††††††

Witnesses Present:††† ††††††††††† Ron Schmitz, Oregon State Treasury

††††††††††††††††††††††††††††††††††††††††††††††† Mike Mueller, Oregon State Treasury

††††††††††††††††††††††††††††††††††††††††††††††† Kate Richardson, Oregon State Treasury

 

Staff Present:††††††††††††††††††††††††† Paul Warner, Legislative Revenue Officer

††††††††††††††††††††††††††††††††††††††††††††††† Mazen Malik, Economist

††††††††††††††††††††††††††††††††††††††††††††††† Steve Meyer, Economist††††††††††††††††††††††††††††††††††††††††††††

††††††††††††††††††††††††††††††††††††††††††††††† Barbara Guardino, Committee Assistant

 

 

TAPE 17, SIDE A

004

Chair Deckert

Calls meeting to order at 9:02 a.m. Introduces three bills from Oregon State Treasury. Announces, committee will begin meeting at 8:30 a.m. next week.

 

PUBLIC HEARING, SENATE BILL 21

015

Mazen Malik

Gives overview of SB 21 (EXHIBIT 1). Deletes prohibition on investment of certain funds in foreign securities. Two sections.

 

046

Ron Schmitz

Testifies in favor of bill. See written testimony (EXHIBIT 2). Explains, bill would remove language restricting holding of securities outside the United States. These are for money market, short-term debt, not equities. This will not create a higher risk. Explains short-term fund, fields questions.

 

079

Mike Mueller

Explains, fund holds the cash assets of all state agencies and local governments participate as they choose to do so.

 

092

Sen. C. Starr

Asks, is there an economic stimulus in investing funds in a company? Follow-up questions.

 

098

Schmitz

Responds, that is true to a degree.

 

115

Sen. George

Expresses concern that Oregon dollars are being invested outside the state.

 

126

Schmitz

Clarifies, this would only be a small percentage of short-term funds.

 

135

Sen. George

Asks what percentage is invested in Oregon?

 

146

Schmitz

Will get back to committee with that information. Percentage is very small. Answers follow-up questions.

 

170

Mueller

Treasuryís goal is to achieve highest return possible. Short-term fund invests in highly secured debt instruments only.

 

180

Chair Deckert

Does Oregon have other restrictions in statute on foreign securities?

 

188

Schmitz

Responds, there are statutory restrictions. Governing boards put restriction on them.

 

195

Chair Deckert

Closes public hearing on SB 21.

 

PUBLIC HEARING, SB 22

206

Malik

Gives background on SB 22, which removes prohibition on State Treasurer investing certain funds in common stocks (EXHIBIT 3, EXHIBIT 4). Three funds include PERS, Industrial Accident Fund (IAF) and Deferred Compensation fund.

 

246

Schmitz

Testifies in support of SB 22. See testimony (EXHIBIT 5). Repeals language that prohibits direct ownership of equities. Change would save Oregon millions of dollars in fees.

 

321

Schmitz

Continues, implementation of such a program is not a done deal. Envisions back-test strategies before running it live.

 

345

Chair Deckert

Asks for an example of a fund that would be back-tested.

 

349

Schmitz

Gives example. Envisions low-risk strategy.

 

368

Sen. Metsger

Asks, by deleting prohibition, is it true that potentially the state treasurer could manage all investments?

 

386

Schmitz

Responds, that is true but highly unlikely.

 

403

Sen. Metsger

Asks where are the checks and balances?

 

415

Schmitz

Responds, Oregon Investment Council would still be the governing body and would hire staff to manage it.

 

432

Sen. Metsger

Expresses concern that if state treasurer is in that position, there may be a potential for lobbying.

 

TAPE 18, SIDE A

020

Schmitz

Continues discussion on checks and balances.

 

035

Sen. George

Does California have this kind of authority with its retirement plan?

 

040

Schmitz

Yes, many of the larger states do.

 

062

Sen. George

What impact will this have on real estate market? How much of state would it be good for the government to own?

 

060

Schmitz

Bill would not increase OPERSí current 8% real estate target.

 

074

Sen. George

Comments, because of a trend of massive holdings, he sees a potential for political correctness to influence decisions.

089

Schmitz

Not to the extent Sen. George fears. Answers follow-up questions.

 

121

Sen. Prozanski

Would like to see information on other states that have this type of process, and the checks and balances those models have.

 

142

Chair Deckert

Perhaps there is another way to design statutorily some other sort of check and balance.

 

 

 

165

Prozanski

Follow-up questions.

 

169

Sen. George

Comments, there is risk potential. Asks how other states have fared.

 

174

Mueller

Does not believe this bill would change the risk; it would just reduce costs.

 

189

Chair Deckert

Closes public hearing on SB 22.

 

PUBLIC HEARING, SB 24

195

Steve Meyer

Describes bill (EXHIBIT 6, EXHIBIT 7), Common School Fund and distributable income account within the fund.

 

208

Mueller

Testifies in support of SB 24. See written testimony (EXHIBIT 8). Current statute provides for investment terms that are not clearly defined. Proposed bill will align the law with the best practices of money management.

 

239

Sen. Metsger

Asks for an example of situations resulting in losses.

 

243

Mueller

Gives example.

 

269

Sen. George

Asks where money would come from to cover loss.

 

280

Mueller

Goal is to look at fund over the long-term. Will earn return over long-term to cover losses.

 

294

Chair Deckert

Comments on prior debate over Common School Fund. Asks whether State Treasury has an opinion on whether legislature should review the construction of the fund and the limits placed upon it.

 

313

Mueller

Responds, fund has performed extremely well and schools have benefited from distributions. Proposed legislation would take the Department further along in managing it more effectively.

 

328

Chair Deckert

Closes public hearing on SB 24. Requests further comment on SB 21.

PUBLIC HEARING, SB 21

352

Chair Deckert

Heard some investments had not been made in Oregon firms, which would defeat the intent of the legislation.

 

325

Kate Richardson

Responds, Treasury would be glad to come back and give overview on last sessionís HB 3613.

 

363

Mueller

Explains contractual relationships between general partners.

 

 

 

399

Richardson

Answers follow-up questions.

 

437

Sen. George

Asks why wouldnít it be prudent to invest in Oregon?

 

474

Mueller

Clarifies, there is no partnership whose mandate is solely to invest in Oregon. Because the state canít invest in companies directly, it is forced to work through fund partnerships and investment managers.

 

501

Chair Deckert

Committee will discuss collections and compliance process over the rest of the week.

 

525

Chair Deckert

Adjourns meeting at 10:00 a.m.

 

 

 

Tape Log Submitted by,

 

 

 

Barbara Guardino, Committee Assistant†††††††††††††††††††††††††††††† Reviewed by Kim Taylor James

 

Exhibit Summary:

1.      SB 21, Staff Measure Summary, Malik, 1 pp.

2.      SB 21, Testimony in Support of Senate Bill 21, Schmitz, 1 pp.

3.      SB 22, Staff Measure Summary, Malik, 1 pp.

4.      SB 22, Legislative Fiscal Office No Expenditure Impact Statement, Malik, 1 pp.

5.      SB 22, Testimony in Support of Senate Bill 22, Schmitz, 2 pp.

6.      SB 24, Revenue Impact of Proposed Legislation, Meyer, 1 pp.

7.      SB 24, Legislative Fiscal Office, No Expenditure Impact Statement, Meyer, 1 pp.

8.      SB 24, Testimony in Support of Senate Bill 24, Schmitz, 1 pp.