The state is set to earn an extra $1 million this year, and likely as much as an extra $15 million each year starting in 2014; by simply getting more for its money.
The new windfall is thanks to legislation that changed 50-year-old investment rules in Missouri.
“Missouri was one of only two states in the nation that when I placed money, a CD for instance, in a Missouri bank, our interest rate was capped. So Missourians were not getting a fair return for our investments in Missouri institutions,” said Missouri State Treasurer Clint Zweifel.
Under the previous regulations the state’s ‘time deposit’ investments (similar to CD’s) were tied to the U.S. Treasury yield, which has been as low as 0.2% the last couple of years. So the funds Zweifel was managing were not earning to their full potential if they were invested in Missouri banks.
“We actually manage many different pockets of money for the state, many different pools of money, some of it’s general revenue, some of it’s highway money. But combined it’s going to be an additional $15 million a year,” Zweifel said.
The cap will be completely phased out by 2014. In 2010, the first $7 million of time deposits held by a financial institution will still be subject to the cap, with any deposits above set at a market rate. That will drop to $5 million in 2011, $3 million in 2012, $1 million in 2013, and $0 in 2014.
“We no longer have to make a choice between standing up for taxpayers and supporting Missouri’s economy,” Zweifel said. “What this law does is, for the first time in 50 years, it allows us to get a market base return that taxpayers deserve, and ultimately that’s going to allow us to re-invest $1 billion back inside the state of Missouri.”
Zweifel says that is another positive byproduct of these changes.
“We’re beginning to see the effects of this… When we talk about these deposits we make, most of them are in small community banks across the state that are really supporting agriculture and small business,” Zweifel said.
So why does Zweifel think this cap existed in the first place?
“You know, in Jefferson City sometimes there’s an aversion to making real change happen, and sometimes special interests get in the way,” Zweifel said.
Zweifel thanks a bipartisan effort in the legislature to get the changes passed in 2009.