On Friday (fiscal committee cutoff day), the House Appropriations Committee held a public hearing on HJR 4204. Later in the meeting, the committee passed the resolution. (HJR 4204 was requested by the state treasurer; its companion, SJR 8205, was not heard by Ways & Means.)

HJR 4204 would amend the state constitution to allow the state to invest “funds held for the purpose of reducing persistent poverty.” Generally, the constitution prohibits investing state funds in stocks. (We discussed the history of this provision in a 2020 policy brief.) Adopted constitutional amendments have allowed the investment of moneys in “any public pension or retirement fund, industrial insurance trust fund, or fund held in trust for the benefit of persons with developmental disabilities.” (Voters rejected an amendment in 2020 that would have allowed the investment of funds in the long-term services and supports trust account.)

As we showed in the 2020 brief, the ability to invest in stocks provides better earning opportunities than the investment vehicles that are generally allowed under current law. To the extent that a particular fund represents reserves for obligations that will occur well down the road, it may be beneficial to allow it to be invested in stocks.

However, HJR 4204 seems to be putting the cart before the horse. As far as I know, there are currently no state “funds held for the purpose of reducing persistent poverty.”

Nothing explicit was said in the Appropriations Committee meeting about the reason for this proposal. Chair Ormsby said that the proposal is

trying to deal with what has been a very vexing issue over the entirety of the existence of this country, and particularly in recent generations, about the challenge of persistent poverty and what can we do to build generational wealth within families and individuals and the opportunity to do this through the exemplary investment record of the state investment board is an opportunity to fund programs and services that do create generational wealth and a path out of poverty over generations.

HJR 4204 would not actually provide any funding. If the Legislature appropriates funds to a fund “held for the purpose of reducing persistent poverty,” then the money could be invested under this resolution.

To that end, is the Legislature contemplating moving forward with the Washington future fund program? This year HB 1094 and its companion SB 5125 were introduced at the request of the state treasurer. Both bills were passed out of their policy committees but were not passed (or heard) by Appropriations or Ways & Means.

The bills state, “The legislature finds that reducing barriers to wealth building activities is a vital strategy in combating persistent poverty and promoting economic resilience for Washingtonians.” (Emphasis added.)

As passed by the House Committee on Human Services, Youth, & Early Learning and the Senate Committee on Human Services, the bills would create the Washington future fund program. Beginning with the 2024 legislative session, they would require the appropriation of $4,000 per person born in Washington in calendar year 2024 who was enrolled in Medicaid or the Children’s Health Insurance Program (CHIP). (This group is called a “cohort,” and the Caseload Forecast Council would be charged with estimating these population figures.) Going forward, each biennial budget would include $4,000 for each person expected to be born in the biennium who was enrolled in Medicaid or CHIP, plus any additional appropriations necessary to fund past cohorts (if they had been underestimated).

The appropriations would be deposited in the new Washington future fund account. Then, when a member of a funded cohort is 18–36 years old, lives in Washington, demonstrates financial need (the definition for this is yet to be determined), and has completed a financial education requirement, he would be entitled to one disbursement from the Washington future fund account. Disbursements could be made only to fund postsecondary education, purchasing a residence in Washington, or starting a business in Washington. The disbursement amount would be the original appropriations for the cohort plus any investment earnings, divided by the population of the cohort.

According to the fiscal note for SHB 1094, the bill would reduce general fund–state revenues by $162.9 million in 2023–25 and $329.1 million in 2025–27. The fiscal note assumes that the 2024 cohort population would be 40,723. In the fiscal note, the State Investment Board estimates that the fund could yield “15-year median returns of 5.8 percent for a 60 percent equity / 40 percent fixed income portfolio” or “15-year median returns of 3.3 percent for a 100 percent fixed income portfolio.” A fixed income portfolio would be allowed under current law, but investing in equities is prohibited by the constitution.

Similar legislation was introduced last year but not adopted. However, the 2022 supplemental operating budget established a committee to make recommendations on how to implement a potential Washington future fund program. The final report is available here. It includes a fiscal estimate (page 44) that shows potential disbursements per claimant. If the funds could not be invested in stocks, an 18-year-old claimant’s disbursement would be an estimated $7,200 and a 35-year-old claimant’s disbursement would be an estimated $12,700. If the funds could be invested in stocks, an 18-year-old claimant’s disbursement would be an estimated $11,300 and a 35-year-old claimant’s disbursement would be an estimated $24,200.

Of course, those figures could vary significantly. Nevertheless, they show why the Legislature would want to amend the constitution to allow the investment of these funds, if it chooses to move forward with the future fund program.

(Note that Gov. Inslee’s proposed 2023–25 operating budget includes $325,000 for the state treasurer for “ongoing policy and program analysis of the Washington future fund program,” but it wouldn’t fund the program itself.)