State treasury’s haul in quarter up $7.2M
Finance Board hears of earnings rise
The state treasury’s interest earnings on its investments increased last quarter by $7.2 million from the same period a year ago, reaching $17 million, Treasurer Dennis Milligan told the state Board of Finance on Tuesday.
During the first six months of fiscal 2018, interest earnings totaled $35.6 million, up by $14 million from what was earned in the same period in fiscal 2017, Milligan said. Fiscal 2017 ended June 30 and fiscal 2018 started July 1. The last quarter ended Dec. 31, and the treasury’s investments total more than $3 billion.
“With these investment receipts, we have fulfilled all of our annual obligations [of $5 million] to the Budget Stabilization Trust Fund and the majority of our obligations to the highway fund,” Milligan said.
“As a matter of fact, we are on pace to fulfill the remaining amount of our yearly obligation to that [highway] fund very soon, which hopefully will allow additional funds to go toward building up the Long-Term Reserve Fund, enhancing the financial condition of the state,” the Republican from Benton said.
So far this fiscal year, the treasury has transferred $18.9 million in interest earnings to the highway transfer fund that can be tapped to match federal highway funds, Grant
Wallace, the chief deputy treasurer of programs and services, said after the Finance Board’s meeting.
The highway fund is required to provide another $1.1 million more this fiscal year to meet its obligation under Gov. Asa Hutchinson’s highway plan approved by the Legislature in 2016. Beyond using $20 million a year in treasury interest earnings, the Republican governor’s highway plan also relies on using 25 percent of the annual general-revenue surplus and several million in reallocated state funds to raise about $50 million to match $200 million in federal highway funds.
The Long-Term Reserve Fund was created in 2016. In 2017, the Legislature approved Hutchinson’s plan to transfer about $100 million in tobacco settlement proceeds into the fund. The fund now holds $123.4 million, Scott Hardin, a spokesman for the state Department of Finance and Administration, said after the Finance Board’s meeting.
The Budget Stabilization Fund provides for temporary loans to be made for certain state agency funds to alleviate cash flow concerns between month-end distributions of revenue, and its current balance is $154.9 million, Hardin said.
Milligan assumed office in January 2015, midway through fiscal 2015. Treasury earnings totaled $22.3 million in fiscal 2015 and then $48.9 million in fiscal 2016.
In fiscal 2017, the treasury earned $57.5 million in interest on its investments — the largest amount since fiscal 2009’s $72.6 million.
Milligan has said he’s seeking re-election this year to a second four-year term. He has no announced challenger.
So far in fiscal 2018, Milligan said, the five-year U.S. Treasury note rates experienced a decline and the value of the dollar also declined.
“This certainly can increase the risk of inflation as well as the likelihood of federal interest rate hikes, which obviously has happened,” he said. “In response to the conditions, we continue to position our portfolio towards the short-term, which allows us to not only see increased income as federal interest rates rise, but also allows us to protect our invested principal while waiting for more attractive longterm opportunities to present themselves,” he told the Finance Board.
Milligan said the treasury’s short-term investment portfolio earned $8.59 million in the last quarter, compared with $4.8 million in the same quarter a year ago, as the size of the portfolio increased to nearly $2 billion and the treasury continued to secure competitive rates on its commercial paper and demand accounts.
The treasury’s long-term investment portfolio earned $8.48 million last quarter and that’s a nearly $3.5 million increase over the same quarter a year ago, Milligan said. The long-term investment portfolio of about $1.4 billion consists of mortgage-backed securities, Wallace, the deputy treasurer, said after the Board of Finance meeting.
Milligan said: “I certainly take my hat off to the whole team, specifically the investment [team]. … We are just on top of it just on a continuous basis and that has certainly proved to be successful.”
Afterward, the treasury’s senior investment manager, Ed Garner, said, “Increased interest rates are the biggest driving force in the [treasury’s increased investment] return,” and active management of the investment portfolio also has helped boost increased earnings.
The state Board of Finance is chaired by Department of Finance and Administration Director Larry Walther. It also includes the governor or his representative; the treasurer; the auditor or her representative; the bank commissioner or her representative; the securities commissioner; and two appointees each from the House speaker and Senate president pro tempore.