“Look, from an intellectual standpoint, it makes sense,” said state Sen. Dave Lewis, R-Helena. “But let's be real here. With the market in chaos, people aren't going to vote for it. I'd be utterly amazed if it passes.”
Lewis formerly was executive director of the Montana Board of Investments, which would invest the money. He also was state budget director under governors from both major political parties.
If approved, it would amend the Montana Constitution to allow up to 25 percent of all public trust funds to be invested in stocks. These funds now must be invested in fixed-income investments or bonds.
A 2007 fiscal note accompanying the bill said the ballot measure would affect seven trust funds totaling
$1.3 billion. The largest among them are the permanent coal tax trust fund, valued at $531.7 million at the time; the school trust fund, with $432.4 million; and the Treasure State Endowment, valued at $144.9 million.
These funds currently are part of the trust funds bond pool, which operates like a mutual fund. They are invested in corporate and government bonds and earn about 5.5 percent annually.
Two state-run funds already are allowed to be invested in stocks - state and local pension funds and workers' compensation funds.
Backers of CA-44 have said that historically, over time, stocks yield a higher return than bonds.
“Bonds have lower returns and are considered safer,” Lewis said. “But if interest rates go up, the value of bonds goes down.”
Lewis also said allowing up to a quarter of these funds to be invested in stocks would better diversify the investments that are now
100 percent invested in bonds.
However, Sen. Jerry O'Neil, R-Columbia Falls, said there are two good reasons for Montanans to vote against CA-44.
“First, state purchase of stock would be a risky endeavor, as is apparent right now with the market,” O'Neil said. “Second, if the state does buy stock in some company and the company starts going broke, the state would be set up to bail out the company. And that wouldn't be fair to the competitors of the company.”
O'Neil was asked about CA-44 supporters' claims that over time, stocks yield higher returns than bonds.
“If you're smart enough to buy your stocks low and sell high, it makes sense,” O'Neil said. “But government is not that smart, especially when the lobbyists from the big companies are the ones that are going to approach the government to get them to buy their stock. Do you trust a lobbyist to buy their stock?”
That's not how state investments work, said Carroll South, executive director of the Montana Board of Investments, which oversees investments in pension funds. Lobbyists are not involved in the state's investment decisions.
South said the board has about 25 external money managers that invest state funds in different economic sectors.
“Our external managers buy stock based on what they think is in the best interest of making a return,” South said. “Each one of our external managers has a benchmark, exclusive of fees. They just make strategic decisions day by day.”
Montana voters have twice rejected constitutional amendments similar to CA-44 - in 1988 and 2002, although they did vote in 2000 to allow workers' compensation funds to be invested in stocks.
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