Requires the natural heritage trust to invest its funds pursuant to the prudent investor act

Summary of specific provisions

The bill renumbers subdivision 12 of Section 55.07 of the Arts and Cultural Affairs Law as subdivision 13 and adds a new subdivision 12 that authorizes the Trust to invest and rein- vest the funds of the Trust in accordance with the prudent investor standard of section 11-2.3 of the estates, powers and trust law and pursuant to the provisions of section 2925 of the public authorities law.

Existing law

Section 55.07(1) of the Arts and Cultural Affairs Law authorizes the Trust to accept unconditional gifts, devises and bequests of real and personal property and to administer and expend funds made available to the Trust for any of its purposes.

Section 55.07(10) of the Arts and Cultural Affairs Law authorizes the Trust to administer, manage or operate any property acquired by the Trust pending transfer of jurisdiction thereof and to retain for its corporate purposes any receipts, revenue or income derived therefrom during the pendency of such transfer.

Section 55.13(1) of the Arts and Cultural Affairs Law authorizes the Trust to retain the moneys of the Trust and deposit it in a general account and such other accounts as the Trust may deem necessary for the transaction of its business.

Justification

The Trust is a public benefit corporation initially created by Chapter 653 of the Laws of 1968. The Trust was created to serve as a focal point for the receipt of private gifts and donations to further the State's efforts to conserve its natural and historic resources and to revitalize the State's waterfronts. The Commissioner of Parks, Recreation and Historic Preservation, the Commissioner of Envi- ronmental Conservation, the Secretary of State, and the Chair of the State Council of Parks and Outdoor Recreation serve as members of the Trust.

Because donations to the Trust are in most cases tax deductible, in the years since its creation the Trust has served as a preferred mechanism for private donations of money and real property to further important public conservation initiatives. Donations to the Trust fund a.vast

array of capital improvements to New York State Parks, Historic Sites, and waterfront properties. Private contributions also support many worthy environmental and cultural education programs and performances as well as numerous recreational programs across the state.

When the Trust receives funds for conservation, recreation, and historic preservation purposes, it typically holds these funds in dedicated accounts for an interim period until projects are ready to receive and expend funding. The Trust invests such funds in extremely conservative investment vehicles which return small interest income. This is appro- priate as the Trust's investment goal is to assure the preservation of principal of accounts that are temporarily held in Trust accounts prior to their expenditure.

However, over the years the Trust has received several private gifts to create permanent endowments to support the long-term operation and main- tenance of specific parks and facilities. For example, the Trust holds a $470,000 endowment to support the operations of the Emma Treadwell Thacher Center located at Thompson's Lake State Park. The Trust is actively engaged in seeking private support to additional permanent endowments.

Standard practice followed by most large non-profit institutions is to invest permanent endowment funds in a mix of equities and bond or cash vehicles, to generate annual operating income while securing longterm appreciation of the endowment principal. However, currently it is unclear from the Public Authorities Law, the Arts and Cultural Affairs Law and the regulations of the Office of the State Comptroller whether the investment by the Trust in equities is authorized. This limits the investment of the endowment funds held by the Trust to extremely conservative investments which generate relatively small amounts of annual operating income and preclude long-term appreciation of endowment principal

This bill would allow the investment by the Trust in equities and other investment vehicles that, with the exercise of due diligence, could be utilized in appropriate circumstances to diversify the Trust's invest- ments with respect to the longer term funds and enhance the return real- ized on that portion of the Trust's portfolio. The Prudent Investor Rule, which was enacted to govern the investment decisions of fiduciar- ies, would provide sufficient guidance to the Trust while similarly providing appropriate safeguards to protect the public assets held by the Trust. The authority to invest in accordance with the Prudent Inves- tor Rule, if enacted by the Legislature, would need to be included in an amendment to the Trust's investment guidelines in accordance with the Public Authorities Law §2925.

Prior legislative history

This is a new proposal.

Fiscal implications

Since this bill affects the investment of Trust assets only, there would be no State budget implications.

Effective date

This act shall take effect immediately.