The state treasury earned $48.9 million on its investment of about $3 billion in fiscal 2016, up from $22.3 million the previous fiscal year, state Treasurer Dennis Milligan told the state Board of Finance on Thursday.
"That's just tremendous," said Milligan, a Benton Republican. The earnings were the treasury's best since fiscal 2008.
"We generated these results through active management and with the federal fund rate at 0.25 percent. [But] without increases in the interest rates by the Federal Reserve, it is unlikely that we'll be experiencing dramatic increases, like we have since I took office," said Milligan, who has been treasurer since Jan. 13, 2015, about halfway through fiscal 2015. Fiscal 2016 ended June 30.
Milligan noted that interest rates were between 3 percent and 5 percent when the state treasury earned $87 million on its investments in fiscal 2006 and $112 million in fiscal 2007, and that the rates were between 2 percent and 5 percent when the treasury earned $95 million in fiscal 2008.
"We are just a far, far distance from those rates today, obviously," he said.
The treasury's earnings totaled $47.5 million in fiscal 2009, $34.5 million in fiscal 2010, $27.2 million in fiscal 2011, $22.8 million in fiscal 2012, $18.1 million in fiscal 2013 and $20.3 million in fiscal 2014, according to the treasurer's office.
Milligan succeeded former Legislative Auditor Charles Robinson of North Little Rock. Robinson was appointed by then-Gov. Mike Beebe in May 2013 after then-Treasurer Martha Shoffner of Newport, who had been in the post since January 2007, resigned after her arrest on an extortion charge.
A year ago, Shoffner was sentenced to 30 months in federal prison after a federal jury found her guilty of six counts of extortion, one count of attempted extortion and seven counts of receipt of bribery in connection with a series of cash payments she received from broker Steele Stephens between 2010 and 2013.
Milligan told the finance board Thursday that "other than repos [repurchase agreements for bonds], I do not see me asking the board for any new authority to invest in any other financial products or instruments in the near future."
"We will be very diligent and work as hard as we can. But understand we might be at or near our ceiling in returns until different market conditions occur," Milligan said.
Board member Keith Konecny of Stuttgart asked, "If it is a big turn and it's fast, how is it going to affect us?"
Milligan replied, "I would say patience is going to be a big virtue here and letting our investment team be able to be patient and not just overreacting. ...
"We want to get the highest rate of return. Again, my pledge was every dollar that we could earn in interest was [one] less dollar that the Arkansas taxpayer should have to pay," Milligan said.
In a May special session, the Republican-controlled Legislature and Republican Gov. Asa Hutchinson enacted highway funding legislation. The legislation relies largely on using a portion of future general-revenue surpluses and increased earnings from the treasury to raise about $50 million a year to match another $200 million in federal highway funds available in each of the next five years under the new federal highway law.
In fiscal 2017, the highway funding law taps a few state funding sources, including $40 million from the state's rainy-day fund and $1.5 million from treasury earnings. The plan's future funding sources include 25 percent of general-revenue surpluses and $20 million a year in treasury earnings, starting in fiscal 2018.
Under the law, the treasury's increased earnings also would help fund a long-term reserve fund for use in case of an economic downturn.
"Our ultimate goal is to fund the $125 million [long-term reserve fund]," said Larry Walther, the state's chief fiscal officer and finance board chairman. "There are a lot of benefits to it, just from the perspective of the investment community, Standard & Poor's [and] organizations like that."
Last month, Hutchinson and legislative leaders said they would like to place a substantial portion of the state's $177.4 million general-revenue surplus from fiscal 2016 in the long-term reserve fund.
As of June 30, the treasury's short-term investment portfolio included $906.6 million in commercial paper that matures in 180 days or less, $607 million in demand and sweeps accounts of cash deposits, and $154,948 in money market accounts, Milligan spokesman Grant Wallace said after the finance board meeting.
The treasury's long-term investment portfolio includes $1.5 billion in mortgage-backed securities that mature beyond 180 days and $4 million in municipal bonds that mature beyond 180 days, Wallace said.
In other action, the board voted to support draft legislation to clear the way for the treasury to invest in repurchase agreements for bonds. The draft legislation could be considered during the 2017 regular session that starts in January.
Metro on 08/05/2016