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Creation of the Funds
The endowment funds have their origin in three federal acts granting federal lands to the territory and later the State of Idaho for specific purposes under the Idaho Admissions Act. Income is derived from the sale of land, timber sales, land rentals, cottage site rentals, grazing rentals and mineral extraction from these endowment lands. In accordance with Idaho Code, these funds are perpetually appropriated and set apart for the support and maintenance of the Public School Fund and eight other individual funds, all of which are pooled for investment purposes. (Beneficiaries)
The Department of Lands administers the endowment lands and the Endowment Fund Investment Board manages the income endowment fund. The Endowment Fund Investment Board was created by the 1969 Legislature after passage of an amendment to the Constitution of the State of Idaho Article IX in 1968 by Idaho voters. (The Board)
Purpose
The purpose of the Endowment Fund Investment Board is to invest the proceeds from the endowment lands. In addition to public schools, eight other agencies or beneficiaries were granted endowment lands. Originally, six of these eight endowment funds were grouped together for investment purposes into a “Pooled Fund”, but now all land grant beneficiary funds are managed in a single, commingled pool. The Idaho Admission Act also provides that five percent of the proceeds of sales of federal lands within the state – after deducting expenses – shall be paid into the Public School Fund. That fund also receives monies from unclaimed shares and dividends of Idaho corporations, certain anonymous political contributions, and escheated* estates. For many years, the fund also received monies generated from unclaimed livestock, but beginning in 2015, the Legislature redirected any future amounts to a scholarship fund for agriculture students.
Land grant endowment funds are not “public” funds for the general use of state government. Instead, per federal law and the state constitution, the state must act as a trust manager, managing and distributing the funds solely in the interest of the trust beneficiaries.
Program Changes
When the Board was created, the assets in the land grant endowment funds were approximately $77 million. Currently, those assets are worth over $2.2 billion. (Reports)
The Board originally employed four contract investment managers to manage $40 million of the assets. The balance of $36.9 million was managed by the Department of Finance. In July 1971 the Board employed a professional staff investment manager and released two contract managers. In 1974 one of the remaining contract managers was released, and in 1978 the last remaining outside manager was released. The funds´ growth led the Board to hire two assistant investment managers. The first was funded and hired beginning July 1, 1986, and the second was funded and hired beginning June 6, 1994.
From the inception of the fund in 1968 until 1998, the fund was only allowed to invest in high quality fixed income instruments. Passage of a 1998 constitutional amendment allowed the Legislature to establish much broader investment parameters for the fund. The Board adopted a dynamic investment policy, as opposed to the previous ‘buy and hold’ philosophy, for managing the fixed income securities. This policy created a dramatic increase in income and capital gains for the funds’ beneficiaries.
During the 1998 session, the Legislature made substantial changes to the endowment program. A package of bills was passed that requested a change to the Idaho Admissions Act, a Constitutional Amendment was placed on the November 1998 ballot for a vote of the electorate of the State, and major changes to the investment authority of the Endowment Fund Investment Board were enacted. These changes allow for a broader investment scope, including all assets that a prudent investor could consider and giving responsibility for determination of distributions to the beneficiaries to the Board of Land Commissioners, rather than simply paying all actual income.
The changes were implemented in July 2000, the most notable of which was a significant reduction in fixed income in exchange for an increase in equity securities. Currently, the fund´s asset allocation is 66% equity, 8% U.S. commercial real estate, and 26% fixed income securities. Also, over time, internal management of fixed income securities was discontinued and internal investment staff was reduced from three persons to two. Now essentially all day-to-day management of assets is delegated to outside investment management advisors.
Since 1978, the Board has had investment management responsibility for the reserves and surplus of the State Insurance Fund under the direction of the Fund´s Manager and, since 1998, the Board has had investment management authority for the newly-created Capitol Permanent Endowment Fund. In 2007, the Board assumed investment management authority for the Ritter Island Endowment Fund and later, in 2009, for the Trail of the Coeur d´ Alenes Endowment Fund, both under the direction of the Department of Parks and Recreation. In 2014, the Board assumed investment authority for the newly-created Bunker Hill Water Treatment Endowment under the direction of the Department of Environmental Quality and in 2015, began managing, at the request of the Department of Fish and Game, the Trust Fund and the newly-created Stewardship Fund, both of which support maintenance of wildlife habitat in Idaho. The DEQ and Fish and Game funds are invested alongside the land grant endowments in the same commingled pool.
For many years, the Board was also charged with employment of managers for the Judges´ Retirement Fund, under the direction of the Supreme Court. That responsibility was transferred by the legislature to the trustees of the Public Employees Retirement System of Idaho in July, 2014.
*escheated: property that has reverted to the state when no legal heirs or claimants exist.