Tuesday, November 29, 2005
Adviser Lists Treasurer's Office Fixes
By Trip Jennings
Journal Capitol Bureau
SANTA FE The state Treasurer's Office could increase earnings and reduce costs by up to $5 million by lowering brokers' fees on certain transactions and changing its purchasing practices on others, a financial consultant told lawmakers Monday.
The Treasurer's Office also should decrease its use of one type of investment transaction favored by former Treasurer Robert Vigil.
Under Vigil, the agency made extensive use of so-called flexible repurchase agreements. Those transactions allow the state to sell back securities purchased from an investment firm when the state needs cash.
Such agreements are used for bond proceeds because they allow the state to draw them down to make payments on the debt service schedule. But Barbara Fava of PFM Asset Management LLC of Harrisburg, Penn., said the Treasurer's Office under Vigil used them more often than most states. As of Sept. 30, the Treasurer's Office had $1.4 billion invested in flexible repurchase agreements, or close to one-third of its portfolio.
The Treasurer's Office oversees an investment portfolio of nearly $5 billion in public money.
"I'm not aware of any other state that uses them for general operating costs," Fava said Monday during a status report to the State Permanent Fund Task Force.
Fava is conducting an examination of the Treasurer's Office for the Legislative Finance Committee.
Many of the changes Fava is proposing can be adopted administratively, although some would require a change to state law. The proposed changes are:
Lowering fees by almost half the amount the Treasurer's Office pays to bidders on the flexible repurchase agreements. The Treasurer's Office has paid $525,000 in fees a year to bidding agents, almost double what is recommended in federal guidelines.
Purchasing federal agency securities from the market instead of when the securities are issued. Issuers pay fees to brokers, which, in turn, reduces the interest the state earns on the investment. During fiscal 2005, the state purchased $855 million in "new issue" federal agency securities, according to Fava's report. Fees to brokers were estimated at $769,500, according to her report.
Consider investing deposits the Treasurer's Office has placed in banks. As of Aug. 31, the Treasurer's Office had $70.5 million deposited in several banks. Roughly a quarter of the account balances earned no interest while the average rate of return was 1.7 percent, Fava said.
Conduct a cash-flow analysis that helps the Treasurer's Office predict when it will need cash.
Change state law to allow the Treasurer's Office greater flexibility on what it can use as collateral in repurchase agreements. A statutory change could save the state anywhere from $1.4 million to $2.8 million, Fava estimated.
Fava's recommendations garnered generally favorable response from lawmakers as well as the state's new treasurer.
"I agree 100 percent with these recommendations," said Treasurer Doug Brown, who replaced Vigil.
Vigil, who has pleaded not guilty to multiple federal extortion charges related to an alleged kickback scheme, resigned in late October rather than face possible impeachment by the House.