Deputy Treasurer Al Kramer asked the Assembly Government Affairs Committee on Friday to lift the restrictions on where and how the Treasurer’s Office can invest state money.
Specifically, Kramer, former Carson City treasurer, asked permission to invest state money through what the industry terms “reverse repurchase agreements.” In those contracts, the state sells securities to a party with the stipulation that the state buy them back on a specific date for a specific price. Until then, that frees up the money involved for the state to use in other ways — including for cash flow needs and making other investments that could generate a better return for the treasury.
The office was banned from doing that in 1989 after lawmakers concluded then-Treasurer Ken Santor and his staff didn’t have the necessary expertise to manage those instruments and protect the state from losing money.
Kramer told lawmakers that, properly managed, repurchase agreements and reverse repurchase agreements are safe instruments that, with the controls in AB196, protect the state from losing money.
If market conditions change and the agreement suddenly becomes risky, Kramer said, “you can unwind the agreement any time you want.”
“All you’ve got to do is pay it off,” he said.
Kramer said money freed up through such an agreement could only be invested in very safe instruments such as U.S. government treasury bonds.
The bill also contains a laundry list of other changes to state government and local investment rules:
It would increase the maximum percentage of its portfolio the state or local government can invest in corporate bonds from 20 percent to 25 percent.
It would allow state General Fund money to be invested in securities of any U.S. agency, which local governments are already allowed to do.
It would allow the state and locals to invest in corporate bonds rated “A-“ instead of cutting of any investment at rating “A,” one step above.
It would allow local governments to purchase corporate paper directly from the issuer instead of going through a broker, saving broker fees.
Those are just some of the overall changes to state and local government investment rules in AB196.
Asked what his mentor, former Treasurer Bob Seale would say about the bill, Kramer joked: “I think he would tell me it’s too complicated; you’ll never get it through.”
The committee took no action on the bill.