Arizona Gov. Katie Hobbs has announced a proposal to increase the distribution rate of the $7.9 billion Arizona Permanent Land Endowment Trust Fund to 8.9% for the next 10 years.
The state's treasurer, Kimberly Yee, who oversees the Phoenix-based endowment, is not pleased with the plan.
The Permanent Land Endowment Trust Fund is an endowment fund to which the treasurer deposits the state's land sales to fund education and other state beneficiaries. Hobbs' proposal calls for an extension to Proposition 123, a ballot measure that passed in 2016 that increased school funding by increasing the endowment's distribution rate to 6.9% from 2.5% for fiscal years 2016 to 2025.
At the end of June 2025, Prop 123 is set to expire and the endowment's distribution rate would revert back to 2.5%.
In a Jan. 16 news release, Hobbs called for a 10-year extension of Prop 123 and raising the endowment's distribution rate to 8.9% from 6.9% for fiscal years 2026 to 2035.
"We have a once-in-a-decade opportunity to invest in a public education system that gives every child the opportunity to succeed," Hobbs said in the news release. "We can increase compensation for educators and make schools safer for our kids, all without raising taxes on Arizonans. Or we can let billions of dollars accrue in a bank account and do nothing to address our immediate needs. The choice is clear."
In a Jan. 23 email, Yee said she opposes Hobbs' proposal.
"Prop 123 was enacted as a one-time measure to settle a lawsuit and was not meant to be the new standard for the percentage distribution," Yee said. "What Prop 123 has done is receive today what would have been income in the future for the beneficiaries. As a result, 123 permanently lowered the value of the endowment forever going forward. It's important to note there is no fiscal cliff for K-12 education when Prop 123 expires. The General Fund picks up the amount that the extra 4.4% distribution has been providing. Prop 123 shifted that additional amount of funding for K-12 from the General Fund to the Land Endowment. It was not extra money to K-12."
"What is clear is that in the five years under my watch, we have added investment returns above the corpus and distributions. But past performance is no indication of future results when it comes to investing," Yee said. "Wall Street forecasters predict a 5.45% return for the next decade on a 60 (equity)/40 (fixed income) portfolio like the PLETF. I will continue to make the financial recommendation of a 4%-5% distribution, as it is prudent and consistent with what most endowments distribute annually. At that rate, you provide a hedge against inflation and protect the value of the principal and is also consistent with the IRS guidelines of a 5% payout for private endowments."
The endowment's target allocation is 60% passive equities and 40% active fixed income. For the 10 years ended Dec. 31, the endowment posted an annualized return of 7.2%.
A spokesperson for Hobbs could not be immediately reached for comment.
