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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.
pg_0002
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