Damschen, Gordon, and Donaldson: A proposal to put more money into Utah schools

Written by David Damschen (State Treasurer), Natalie Gordon (School Children’s Trust Specialist), and Tim Donaldson (School Children’s Trust Director).

Senator Ann Millner and Representative Mel Brown are proposing SJR12, an amendment to the state constitution that, if passed by 2/3 of the legislature and approved by voters, will increase and stabilize the distribution from the permanent State School Fund through the School LAND Trust program. A corresponding bill, SB109, details the formula that will be used for the distribution.

The goal of the amendment is to insure that the distribution from the School LAND Trust program reflects the needs of current beneficiaries as well as continuing to grow the fund balance for future beneficiaries.

Graph 1

Most educational endowment funds distribute between 4 and 5% annually, which is considered a fair amount to both grow the fund and provide an appropriate distribution to beneficiaries. The historic distribution from the permanent State School Fund has been closer to 2%. That has provided for rapid growth but may be unfair to current beneficiaries.

The trust principle of intergenerational equity states that a trustee cannot benefit future beneficiaries (by rapidly growing the fund) at the expense of current beneficiaries (by only distributing a small portion of the growth), or vice versa. Treatment of current and future beneficiaries must be balanced.Graph 2

This amendment will both increase and stabilize the distribution. The School and Institutional Trust Fund Director and Board of Trustees have designed a formula that will be in statute to allow for any needed adjustment. This formula considers both enrollment growth and inflation, and includes a rolling three year average of fund growth to ensure the distribution doesn’t respond too quickly to market volatility.

At statehood, Congress granted one-ninth of all the remaining public land in Utah to a trust to support public schools. This land was granted because the federal government understood that with so much land being retained in federal ownership, and thus unable to generate property tax, it would be difficult for Utah to fund public education. Today Utah schools still have 3.5 million acres throughout the state held in trust for our public schools, with the permanent State School Fund recently topping $2 billion. The lands and fund are held by the state as trustee for our public schools, which are the beneficiaries.

Twenty five years ago, it was determined that the trust assets were not being managed for the beneficiaries. The land was underperforming, and the permanent State School Fund had been continually raided, and was at an all-time low balance of just $18 million after 100 years of statehood.  At this time, the School and Institutional Trust Lands Administration (SITLA) was created, and, to ensure that the funds were watched and used only for public education, the School LAND Trust program began.

The interest and dividends from the permanent State School Fund are distributed to each public school in Utah to be spent as needed, as determined by a School Community Council. The funds must be spent on the school’s greatest academic needs, and must be used for direct instruction of students.  The distribution has increased from $12 million in 1992 to $45.8 million this school year. At the same time, the permanent State School Fund has grown to $2 billion.  This growth is due to both revenue SITLA earns as it manages the land, and from investment of the fund, which has averaged 7.5% annually.

A distribution of $45.8 million is amazing, especially considering where we have been. But should it be more? Markets have shifted to where corporations often buy back their stock instead of paying dividends. Many stocks don’t pay dividends at all. A zero-coupon bond pays all of its interest after perhaps 5-10 years. Many prudent investments, such as commodities or currencies, do not pay anything resembling the outdated categories of interest or dividends.

Graph 3

We have a responsibility to make sure we are providing a fair distribution for today’s students, and that we will be able to continue to provide a fair distribution to the children that will benefit from the trust in the future.

Another benefit from the amendment is that, by capping the distribution at 4%, raids on the fund will be prevented. This is especially relevant as neighboring states seek to offset poor management by increasing the distribution from their permanent fund to up to 10%, an amount that will harm future beneficiaries.

This amendment is unanimously supported by the Utah State Board of Education, the board of trustees of the School and Institutional Trust Land Administration, and the School and Institutional Trust Fund board of trustees.

Natalie Gordon
Natalie Gordon

Natalie Gordon is employed by the Utah State Board of Education as a Trust Land Specialist. She spent 5 years on the State PTA Board of Directors as Trust Land Commissioner.  She is the co-chair of the Salt Lake Chapter of BYU Political Affairs Society and the Vice Chair of the Davis County Republican Party. She lives in North Salt Lake with her husband Ron, three beautiful children, and politically active dog Buddy The Dog. Her opinion is her own. Follow her on twitter at @nataliecgordon

David Damschen, CTP is the Utah State Treasurer, where he oversees the state’s banking, investment, debt management, and unclaimed property operations.  Before his appointment as treasurer, David served for seven years as Utah’s chief deputy state treasurer.

PDavid Damschenrior to joining the treasurer’s office in 2009, Mr. Damschen was the Senior Vice President and Director of Treasury Management Services at a Pacific Northwest regional bank, having previously worked 17 years in the institutional trust & custody, treasury management, and retail divisions of U.S. Bank.

A veteran of the United States Coast Guard, David holds a bachelor’s degree in finance from the University of Washington’s Foster School of Business.He is a past president of the Association for Financial Professionals of Utah, and spends his winter weekends serving as a volunteer member of the Powder Mountain Ski Patrol.  For more info, follow ‘Utah Office of the State Treasurer’ on Facebook.  

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