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F I S C A L I M P A C T R E P O R T

SPONSOR Leavell

ORIGINAL DATE

LAST UPDATED

1/21/08

HB

SHORT TITLE Uniform Prudent Management Act

SB 135

ANALYST Wilson

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

FY10

$0.1

$0.1 Recurring Eleemosynary

Funds

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance & Administration (DFA)

SUMMARY

Synopsis of Bill

Senate Bill 135 repeals and re-enacts the Uniform Prudent Management of Institutional Funds

Act. It applies to investment funds provided by gift to charities and to donations and, perhaps,

investments managed by government entities in the state. Certainly, university endowment funds

and other funds managed by government entities partially or wholly derived from gifts from the

public are subject to the terms and conditions established by the bill.

There are few substantive differences between this act and the previous Uniform Prudent Man-

agement of Institutional Funds Act, with the exception of the release or modification of restric-

tions provisions in the proposed code and the limitation to seven percent of the market value for

expenditures.

FISCAL IMPLICATIONS

DFA states there is an insignificant revenue impact. Under the new standards, slightly more reve-

nue might be released from endowment or investment funds derived from gifts than under the

previous version of this act.

Senate Bill 135– Page

2

There will be a minimal administrative cost for statewide update, distribution and documentation

of statutory changes. New laws, amendments to existing laws and new hearings have the poten-

tial to increase caseloads in the courts, thus requiring additional resources to handle the increase.

SIGNIFICANT ISSUES

DFA states that this bill does not establish onerous standards. It establishes that each person re-

sponsible for managing and investing an institutional fund shall manage and invest the fund in

good faith and with the care an ordinarily prudent person would exercise. This is commonly

known as "the prudent man rule." The bill encourages diversification and careful planning of in-

vestments. An endowment fund may not appropriate for expenditure in any year an amount

greater than seven percent of the fair market value of the endowment fund. An institution may

delegate investment decisions to an external agent. An institution may, under carefully specified

circumstances, release or modify restrictions placed on a gift if the restriction is unlawful, im-

practicable, impossible to achieve or wasteful.

Even though the Uniform Prudent Management of Institutional Funds Act nominally applies to

all funds administered by the State Investment Council or the State Treasurer, virtually none of

these funds are derived from gifts. The exception is endowment funds maintained by the state's

colleges and universities.

DW/bb