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Tuesday, January 12, 2010
Review: Curb Gov.'s Power Over Investments
By Dan Boyd And Mike Gallagher
Journal Staff Writer
SANTA FE An outside review of the State Investment Council, commissioned after a string of scandals, recommends significantly curtailing the governor's power over the SIC.
Chicago-based consulting firm EnnisKnupp said decisions on how New Mexico's $13 billion worth of endowment funds are invested have been made internally and largely without scrutiny from the board appointed to oversee the state's portfolio.
The consultants found that Gov. Bill Richardson's influence over the State Investment Council is more far-reaching than it is for governors in most of the 14 other states with similar funds.
During a presentation of their findings to members of the council and the Educational Retirement Board on Monday, the consultants said it's rare for a governor to have the power to appoint a chief investment officer and recommended that the appointment power be shifted to the members of the SIC.
It also recommended more legislative appointments to the council, further diluting the chief executive's power.
As governor, Richardson sits as chairman of the State Investment Council and effectively controls 75 percent of the nine-member board excluding himself via power of appointment.
"The governor's influence over the SIC is significant," said Jeanna Cullins, a principal with EnnisKnupp.
A spokesman for the State Investment Council didn't contest the findings and said the recommendations will be carefully considered.
The reviews of the state's endowment and pension funds were commissioned late last year by legislative leaders after a string of investment scandals hit New Mexico. The reviews cost the state about $425,000, with the Legislative Council Service and the state Board of Finance splitting the cost.
In addition to the recommendation to shift appointment power of the state's chief investment officer from the governor to the SIC, EnnisKnupp made 81 other recommendations regarding council policies. They include:
n Balancing the number of executive branch appointees on the SIC with legislative branch appointees. Richardson vetoed a bill that would have accomplished this last year.
n Allowing for removal of State Investment Council members when their meeting attendance is less than 80 percent.
n Drafting and adopting a code of ethics for investment council members.
Some of the recommendations could be carried out internally by the State Investment Council, while others would require approval by the Legislature or a constitutional amendment approved by voters.
State Investment Council spokesman Charles Wollmann said the recommendations didn't come as a surprise.
"It is important, and I think we're aware of it, that the council members should be highly engaged in the investment decisions," Wollmann said.
The recommendations will be studied in the days and weeks to come, said Wollmann, who complimented the review, saying, "This is to the benefit of both the council and the taxpayers."
The SIC has been linked to a pension fund scandal in New York, and former investment officer Gary Bland resigned his $307,000-a-year post in October after an SIC subcommittee pushed for a no-confidence vote.
Although the review didn't focus explicitly on New Mexico's investment scandals, consultants pointed out during Monday's presentation that the State Investment Council operates with a rare degree of autonomy in comparison to other states.
"The amount of discretion the (state investment officer) and the staff have on investment decisions is somewhat atypical," Cullins said. "If there's an overriding theme here, I think it's that the SIC should be more engaged."
While the SIC review included recommendations on reconfiguring the council, the review of the Educational Retirement Board made many technical recommendations about establishing internal regulations and policies.
First, EnnisKnupp recommended that the board seek budgetary autonomy, meaning it shouldn't have to go to the Legislature for budget approval.
Second, the board should be able to hire its own custodian bank. Under current law, the custodian bank for the ERB, State Investment Council and Public Employees Retirement Association is chosen by the Board of Finance, chaired by the governor.