By Ramsey Scott

Wyoming Tribune Eagle

Via Wyoming News Exchange

CHEYENNE – In an effort to bring more money into the state’s coffers, Wyoming’s state government could soon be using a part of its “rainy-day” fund to invest in the stock market. A proposed bill being worked on by the Joint Appropriations Committee would let Wyoming invest a portion of the Legislative Stabilization Reserve Account in stocks and other equities.

Currently, the Wyoming Constitution only allows money from the LSRA to be invested in fixed-income assets like government bonds. Both the House and Senate would have to vote by a two-thirds majority in the Legislature to approve changing the constitutional restrictions on the LSRA.

The LSRA acts as the Legislature’s rainy-day account and has often been used by lawmakers to fill funding gaps or other unmet state expenses. Currently, the fund has about $1.5 billion in the bank.

Members of the JAC spent much of their time on the proposed bill Wednesday trying to decide how much risk the state should take with its emergency account. And what, if any, guardrails should be established for investing unobligated LSRA funds in the equity market.

Gov.-elect Mark Gordon addressed the JAC in his current role as state treasurer and said it is imperative that the need for stability of the LSRA be stated unequivocally in any bill the Legislature passes.

“It is very important that part of this bill articulates the purpose of the LSRA. That will guide the asset allocation. We’re not looking at it as an investment fund, per se,” Gordon said. “That articulated purpose of the LSRA is very important as you do this, so that the temptation of looking at this as an investment fund doesn’t overwhelm the purpose of the LSRA, which is to provide for some cushion in downturn circumstances.”

Lawmakers were unable to land on a percentage of the LSRA they thought should be allowed to be invested in the equity market during their meeting. But many on the committee seemed to favor the idea of splitting investments from the account into a short-term, mid-term and long-term approach.

Patrick Fleming, the chief investment officer for the Treasurer’s Office, said lawmakers needed to have an idea of how much risk they would be willing to take on with the LSRA to set guardrails that would balance the need for investment returns and security. He said splitting the portion of the LSRA available for investment into short-, medium- and long-range investments made sense from a risk perspective.

But Fleming said lawmakers needed to first decide exactly how much the state could risk investing before deciding on a final strategy.

“What you really want to do is look at, one, what would be the risk that you wanted to associate. How much potentially could you lose?” Fleming said. “It would really depend upon your risk parameters. Instead of saying, ‘OK, let’s take this percent and put it in,’ a better way to do it is say, ‘How much risk are we willing to take? What would be the maximum drawdown we would need or have with this pool?’ And once we have that number, then we back in the asset allocation.”

The goal would be to put a portion of the money the Legislature knows it will need in the short term into investments like one- and two-year bonds. That would be balanced with a long-term investment approach for the portion of the fund lawmakers intend not to touch unless the state is facing a dire financial situation.

“It’s sort of an unwritten rule that we’ve talked about a benchmark where we’re not intending to go below (in the LSRA) unless times get really difficult,” said Sen. Bill Landen, R-Casper. “It seems to me that if we intend to always leave a certain amount there if at all possible, it make sense that that would be a long-term investment.”

While the state wants to limit risk with the LSRA, the change is being considered in large part to capitalize on the more than $1 billion in state funds to try and pull in more revenue.