Subprime loans helped create our national economic crisis. Politicians, bankers and regulators are rightfully taking heat for some bad decision-making.
State Treasurer Cary Kennedy and Rep. Andy Kerr apparently missed the message. They have proposed a new law to divert money from the state’s school trust fund to make sub-market loans to schools that want to build solar panels and wind turbines. The bill uses money intended for all schools to subsidize a few.
The proposal may achieve a political objective regarding renewable energy, but it is not what the trust fund is for, and it will fail to generate the highest investment return for Colorado’s schools.
As part of Colorado’s statehood, the federal government granted more than 4 million acres of land — with earnings from crops, leases, oil and gas production, etc., on those lands — to fund our public schools. Using these resources, the State Land Board creates revenue for the Permanent School Fund that is invested by our state treasurer.
Out of nine Western states, Colorado ranked seventh in revenue produced from trust lands, according to an analysis prepared by the state’s non-partisan legislative council in 2007. But give our land board credit for working in recent years to be more innovative and improve our state’s performance. They are making progress and do generate millions in revenue annually for our school trust fund.
The land board’s hard work to create reasonable and consistent revenues for the trust should not be undercut by the political manipulation of the trust’s cash. Exploiting our school trust monies to advance political agendas is a bad idea. Those funds should be dedicated to generating the maximum return for all schools through sound investing. Period.
This legislation actually exempts the treasurer from her requirement to seek the maximum return for the state’s investment. In today’s budget environment, that strategy should be unthinkable. It also gives the state the authority to withhold traditional school funding if the renewable energy investment doesn’t pay off and the loan defaults. That means the loans have a senior position to classroom funding — pay for the project and then, with what’s leftover, teach the kids.
Why in the midst of an economic crisis that has origins in off-market lending is Colorado’s treasurer now promoting the very same thing? Kennedy stated that the loan rate charged to participants would be lower than a bank’s, but slightly higher than her “normal” return of around 5 percent. What a deal! Or is it?
Other states have achieved returns higher than 8 percent in their trust funds without investing in equities. States with diversified portfolios are better still. But instead of emulating those states, the proposed Kennedy/Kerr loans would yield below-market returns by design.
School trust funds should not be diminished this way. Instead, our leaders should focus on the kind of prudent investing that yields our neighbors a 60 percent greater return on investment than Colorado — without political interference.
The treasurer is supposed to stand guard over our investments, act independently, and shelter our trust funds from the political winds. But politically correct winds can apparently blow away sound investing.
J.J. Ament is a former investment banker who specialized in public finance. He is currently considering a run for state treasurer.
