DALLAS — Texas Comptroller Glenn Hegar would be allowed to take more risks investing the state's rainy day fund under a measure that won final approval from the legislature on May 12.
House Bill 903 by State Rep. Giovanni Capriglione, R-South Lake, won final passage in the Senate on a 29-1 vote. If signed by Gov. Greg Abbott, the bill takes effect Sept. 1.
Under the legislation, the state Comptroller will be allowed to invest 70% of the emergency savings account in financial instruments that will produce higher yields.
The remaining 30% will remain in safer, lower-yield assets such as Treasury bonds.
Created in 1987, the rainy day fund, known formally as the Economic Stabilization Fund, is expected to reach $11.1 billion by the end of fiscal 2016-17, absent any appropriations from the fund, according to the Hegar's January 2015 Biennial Revenue Estimate. The fund is expected to be about $7 billion by Aug. 30, the end of the current fiscal year.
The current law caps the amount of the fund at10% of the total amount deposited into general revenue the previous biennium, minus investment income, interest income, and amounts borrowed from special funds. The cap for the current biennium is $14.1 billion, and the cap is estimated to be $16.1 billion for fiscal 2016-17. The fund has never reached the cap.
The investments envisioned under the bill could be targeted to earn inflation or inflation plus a set percentage. Under some estimates, for every $1 billion invested, the state could earn $15 million annually. That would preserve the fund's purchasing power and grow the state's savings account, which is not keeping up with inflation.
Under the prudent investor concept, investment advisors could follow examples set by other state funds such as the state Permanent School Fund or the Permanent University Fund that, like the rainy day fund, capture income from oil and gas production.
