Washington State

Office of the Attorney General

Attorney General

Bob Ferguson

AGO 1984 No. 22 -
Attorney General Ken Eikenberry


The provisions of Wash. Const., Art. XXIX, § 1 (Amendment 49) do not cover the investment of money in the state industrial insurance accident, medical aid and reserve funds so as to permit the investment of those funds in corporate stock pursuant to legislative authorization, notwithstanding the provisions of Wash. Const., Art. XII, § 9. 

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                                                                 August 31, 1984 

Honorable Sam Kinville, Director
Department of Labor and Industries
General Administration Building
Olympia, WA 98504

Cite as:  AGO 1984 No. 22                                                                                                                

  Dear Sir:

            By letter previously acknowledged you requested our opinion on certain questions relating to the investment of state industrial insurance funds.  We paraphrase your questions as follows:

            (1) Does Wash. Const., Art. XXIX, § 1 (Amendment 49) cover the investment of money in the state industrial insurance accident, medical aid and reserve funds so as to permit those funds to be invested in corporate stock, if authorized by the legislature, notwithstanding the provisions of Wash. Const., Art. XII, § 9?

             (2) In the event that question (1) is answered in the negative, what action would be necessary before such funds could legally be invested in corporate stock?

            (3) If industrial insurance funds may not constitutionally be invested in corporate stock, are there other types of investments which the State Investment Board may make with excess accident, medical aid or reserve funds?

 We answer question (1) in the negative and respond to questions (2) and (3) in the manner set forth in our analysis.

              [[Orig. Op. Page 2]]


             Question (1):

             Prior to approval by the voters of Amendment 49 to the State Constitution at the November, 1968 general election, all investments made by the state (including its investment of pension funds and industrial insurance funds) were deemed to be restricted by the following language of Art. XII, § 9 of the Constitution:

            "The state shall not in any manner loan its credit, nor shall it subscribe to, or be interested in the stock of any company, association or corporation."

             By that 1968 amendment, however, the following new section (now Art. XXIX, § 1) was added to the Constitution:

             "Notwithstanding the provisions of sections 5, and 7 of Article VIIIand section 9 of Article XII or any other section or article of the Constitution of the state of Washington, the moneys of any public pension or retirement fund may be invested as authorized by law."  (Emphasis supplied.)

             As a consequence, it has since been permissible for ". . . the moneys of any public pension or retirement fund . . ." to be invested,inter alia, in corporate stock‑-pursuant to legislative authorization.  Cf., RCW 43.84.150.  The principle issue raised by your request is whether that 1968 constitutional amendment also covers the state's industrial insurance funds‑-as well as moneys in the several publicemployees' retirement funds.1/

             The wording of the constitutional amendment is, at least arguably, ambiguous on that count.  It may, on the one hand, be broadly read to include any moneys held by the state or a municipality which are (a) in some sort of pension or retirement fund and (b) public in nature.  Or, instead, it may be construed only to cover moneys in a public employees' pension or retirement fund‑-such as those referred to in footnote 1, above.  And indeed,  [[Orig. Op. Page 3]] both views have, in the past, been expressed by individual attorneys in this office in informal opinions to the State Finance Committee (in 1975) and its successor, the State Investment Board (in 1981).2/ It is now our considered and formal opinion, however, that the second of those two readings of Article XXIX, § 1 (Amendment 49) supra, is the correct one; i.e., that the amendment, properly construed, only covers publicemployees' pension funds.

             We base our opinion on two separate, but consistent, aspects of the constitutional amendment's legislative history.


            First, our research discloses that the measure which became Amendment 49,supra, originated with the now dormant, but then quite active, public pension commission created by chapter 17, Laws of 1963, 1st Ex. Sess.  We have, therefore, examined in detail the files of that agency (now in or State Archives) covering its deliberations leading up to submission of the (then) proposed constitutional amendment to the 1967 session of the legislature.  And what we have found, quite logically, is that all of the materials in those files relate exclusively to the several public employees' retirement systems for which the pension commission was then responsible pursuant to RCW 41.52.040, et seq.‑-and to a concern for increasing the investment revenues of those retirement systems.  Conversely, none of the documents which we have examined reflect any thought whatsoever on the part of those involved that the proposed constitutional amendment might also cover, and authorize, the investment of state industrial insurance funds in corporate stock or bonds.  The commission members and staff thus apparently understood the phrase "any public pension or retirement fund" to refer only to the various state and local pension systems for public employees.

              [[Orig. Op. Page 4]]


            Our second source of legislative history involves the treatment which the proposed constitutional amendment received, after its passage by the legislature, in the 1968 Official State Voters' Pamphlet.3/ Following its approval by the 1967 Legislature the ballot proposition which (when likewise approved by the voters) became Article XXIX, § 1 (Amendment 49) of our State Constitution, supra, was submitted to the voters in 1968 as Senate Joint Resolution No. 5.  See, 1968 Voters' Pamphlet, pages 20-21.  And the official statement "FOR" the proposition was quite explicit as to its scope and purpose.  That statement, we also note, was prepared by a committee consisting of several state senators and representatives who had initially voted on the measure when it was before the legislature‑-as well as a member of the public pension commission, the Executive Director of the Washington Federation of State Employees, and the Master of the Washington State Grange.  It read, in full, as follows:

             "The Washington State Constitution, adopted in 1889, severely limits the investment of public funds, including pension and retirement funds.  State employee retirement boards have found that the present constitutional limitations do not allow participation in some kinds of excellent long-term investments, the earnings of which could play a major role in financing the cost of a retirement system.  In many cases returns from such investments will support as much as 1/3 of the total cost.

              [[Orig. Op. Page 5]]

"SJR 5 would not automatically make any change in the investment laws of the retirement and pension funds, but its passage would enable the legislature to do so.  This would grant the same constitutional authority to the retirement boards as the voters approved for the state's Permanent School Fund in 1966.

             "SJR 5 is supported by retirement boards representing more than 95% of the public employees in the State of Washington, and public officials, public employee groups, retired employees and retirement fund administrators.

             "In the study,State and Local Pension Funds, 1968, the Investment Bankers Association of America found that the investment laws of the State of Washington are among the twelve most restrictive of all the 50 states.  The Council of State Governments in its March, 1967 report, Administration of State Fund Investments, states, 'In the past few years, state governments have been reviewing their practices with respect to investment of state funds, seeking to maximize interest earnings on funds not required for immediate use.'

             "The passage of SJR 5 will allow the State of Washington to keep pace with other progressive states by securing for public employee retirement funds the best earnings possible.  Without any additional cost to Washington taxpayers, this will bring more income to tens of thousands of Washington families."

             Repeatedly, you will observe, the authors of this statement to the voters referred to publicemployees' pension or retirement funds.  In addition, they spoke of the broadened investment authority which would result from voter approval of the constitutional amendment as belonging to the respective retirement boards‑-which then administered those publicemployees' retirement or pension funds.  On the other hand, they made no mention at all of workers' compensation (i.e., industrial insurance) funds, which‑-although public in nature as well‑-involve an on-the‑job disability program which covers employees and employers in both the public and the private sector.  See, RCW 51.12.010,et seq.  Yet seemingly, if those funds had also been on the minds of the proponents of SJR 5,supra, they would have received at last some passing mention in their official statement in support of the measure.

             [[Orig. Op. Page 6]]

           We also think it pertinent to note that this material from the 1968 Official Voters' Pamphlet was similarly considered by this office when, in 1981, we advised the Investment Board that the constitutional amendment did not cover industrial insurance funds.  It was, however, not mentioned in our earlier, 1975, memorandum opinion.4/ Indeed, it is further worth noting that the earlier, 1975, opinion dealt primarily with other questions involving a different matter; namely, investment of the State Permanent School Fund under Wash. Const. Art. XXVI, § 5 (Amendment 44) which was approved by the voters in 1966‑-and it only touched, briefly, on the instant question.


             Based upon the foregoing, seemingly unequivocal, considerations involving the reasons for, and history of, the subject 1968 constitutional amendment it is, therefore, our opinion that your first question (as above paraphrased) must be answered in the negative.  Wash. Const. Art. XXIX, § 1 (Amendment 49) does not cover the investment of money in the state industrial insurance accident, medical aid or reserve funds so as to permit those funds to be invested in corporate stock pursuant to legislative authorization, notwithstanding the provisions of Article XII, § 9,supra.  Instead, that 1968 constitutional amendment only covers publicemployees' pension and retirement funds.

             Question (2):

             Your second question, in essence, anticipates that answer to your first inquiry and asks:

             ". . . what action would be necessary before such funds could legally invested in corporate stock?"

             There are, as a practical matter, two avenues which might be pursued to obtain that result.


            First, of course, since this opinion (like any attorney general's opinion) is advisory only the possibility of a court test might be considered.  And, conceivably, even while agreeing with our present interpretation of the 1968 constitutional amendment,  [[Orig. Op. Page 7]] the Washington Supreme Court might now be willing to hold that the underlying prohibition of Article XXII, § 9, supra, is inapplicable to either public pension or workers' compensation funds.  There are, in fact, a few cases from other jurisdictions having similar constitutional provisions which would lend some support to such a conclusion.  See,e.g.,Louisiana State Employees' Retirement System v. State, 423 S.2d 73 (La. App. 1982); and Utah State Land Board v. Utah State Finance Comm., 12 Utah 2d 265, 365 P.2d 213 (1961).  There are, however, also cases to the contrary.  See,Board of Trustees v. Pearson, 459 NE.2d 715 (Ind. 1984);Michigan Savings & Loan League v. Municipal Finance Comm., 347 Mich. 311, 79 NW.2d 590 (1956); and Nebraska League of Savings & Loan Associations v. Mathes, 266 NW.2d 720 (Neb. 1978).  And our court, in the past, has generally been aligned with the more conservative courts in other states on analogous (or similar) issues, at least where some risk of loss of state funds is concerned.  Compare,e.g.,State Highway Comm'n v. Pacific Northwest Bell Tel. Co., 59 Wn.2d 216, 367 P.2d 605 (1961) with Housing Finance Comm'n v. O'Brien, 100 Wn.2d 491, ___ P.2d ___ (1983).

             In addition, the very existence in this state of not one but two constitutional amendments establishing exceptions to the general prohibition for certain specific funds (i.e., public employees' pension funds under Amendment 49 and permanent school fund moneys under Amendment 44) carries with it a fairly obvious negative implication with regard to the other state funds.  Presumably, neither the legislature nor the voters were engaging in meaningless or unnecessary action when they approved those two constitutional amendments.


            We would, however, be somewhat more optimistic about the possibility of success under the other approach which is also available; namely, a further constitutional amendment along the lines of Article XXIX, § 1 (Amendment 49) and, as well, Article XVI, § 5 (Amendment 44), supra.  It is true, of course, that this approach would require approval by two-thirds of the members of both houses of the legislature and, then, by the people at the next state general election‑-all as provided for in Wash. Const. Art. XXIII, § 1.  Nevertheless, in view of the ground which has already been plowed by those other two, similar, constitutional amendments it is difficult for us to visualize, at this point in our history, any significant opposition.  In any event, we would be happy to work with you in drafting such a  [[Orig. Op. Page 8]] proposed constitutional amendment and, then, in further explaining it to the legislature should you elect to proceed down this path.

          Question (3):

            In the meantime, however, we may presently respond to your third and final question by noting that there are a number of other types of investments which the State Investment Board may lawfully make with excess industrial insurance fund moneys.  Clearly, those funds may be invested in federal, state or local government bonds in the same manner as other state funds are now invested by both the Investment Board and the State Treasurer's Office.  Second, they may also be invested in governmentally-insured or guaranteed bank securities such as certificates of deposit under the reasoning of the Washington Supreme Court inGraham v. City of Olympia, 80 Wn.2d 672, 497 P.2d 924 (1972).  And third, so long as the investments are limited to bona fide acquisitions on the secondary market, we believe that valid arguments can be made in support of the legality of industrial insurance fund investments (like those which the State Treasurer is currently authorized by RCW 43.84.080 to make) in such things as bankers' acceptances or commercial paper.5/

             We trust that the foregoing will be of assistance to you.

 Very truly yours,
Attorney General

Senior Deputy Attorney General

                                                         ***   FOOTNOTES   ***

 1/E.g., the Public Employees' Retirement Fund (RCW 41.40.100), the State Teachers' Retirement Fund (RCW 41.32.030), the Law Enforcement Officers' and Fire Fighters' Retirement Fund (RCW 41.26.070), etc.

 2/The Investment Board, in essence, took over the investment functions of the Finance Committee in 1981, following passage of chapter 3, Laws of 1981.  Earlier, by memorandum opinion dated February 24, 1975, the assistant attorney general then assigned to the Finance Committee had expressed the broader view and, for a short time thereafter, limited investments of industrial insurance funds in corporate stock were made.  Following creation of the Investment Board, however, we again reviewed the question and verbally expressed a contrary conclusion.  The investment program, however, had already been terminated for administrative reasons.

 3/It is well established that one way of resolving an ambiguity in a case such as this‑-involving a ballot proposition which was submitted to the voters‑-is by looking to the State Voters' Pamphlet which is published before each election pursuant to RCW 29.81.010, et seq.  See,e.g.,State v. Green, 91 Wn.2d 431, 588 P.2d 1370 (1979);State ex rel. PUD No. 1 v. Wylie, 28 Wn.2d 113, 182 P.2d 706 (1947);Lynch v. Department of Labor & Industries, 19 Wn.2d 802, 145 P.2d 265 (1944);Bayha v. Public Utility District No. 1, 2 Wn.2d 85, 97 P.2d 614 (1939); andDenny v. Wooster, 175 Wash. 272, 27 P.2d 328 (1933)‑-in all of which the Supreme Court looked, inter alia, at the statements appearing in the Voters' Pamphlet in support of, or in opposition to, state‑wide ballot propositions in order to determine the probable intent of the voters in approving the particular measure.

 4/See, footnote 2, above.

 5/It is to be noted, however, that industrial insurance fund moneys are, statutorily, to be invested by the State Investment Board ". . . in the manner prescribed by RCW 43.84.150, . . . " rather than by the State Treasurer under RCW 43.84.080, supra.  See, RCW 51.44.100.