Amendment 5 paying off for state

It's been eight months since voters approved it and only about six months since the Missouri State Treasurer's Office has been able to use it, but Amendment 5 already has earned the state of Missouri an additional $3.02 million in interest on its investments.

During the next 12 months, Amendment 5's new investment provisions could earn the state $5 million more in interest than it would have earned without it, according to a press release from Treasurer Bob Holden's office.

"Amendment 5 is allowing the state to increase its earnings while maintaining our traditional, strong margin of safety," Holden said in the release.

"Missouri still has one of the safest, most conservative state investment programs in the nation."

Amendment 5, which was approved by voters last November, changed Article IV, Section 15 of the Missouri constitution to allow the state treasurer to increase the maximum maturity in U.S. Treasury and agency securities from three to five years, and added the highest-rated investment-grade commercial paper and banker's acceptances as allowable investments.

The amendment also requires the state treasurer to prepare, maintain and adhere to a written investment policy that includes an asset allocation plan.

Prior to Amendment 5, the state treasurer was limited by the state constitution to investing in U.S. government agency securities and collateralized time deposits in Missouri financial institutions. Investments could not be placed for longer than three years.

As of May 31, the Treasurer's Office investment division had placed almost $600 million or about 18 percent of its portfolio in commercial paper. Commercial paper is an investment-grade security issued by the nation's largest corporations for short-term financing of not more than 270 days.

Amendment 5 allows the State Treasurer's Office to buy only the highest-rated commercial paper with maturities of not more than 180 days. GE Capital and Ford Motor Credit are among the companies whose commercial paper has been purchased by the State Treasurer's Office.

In the coming months, the Treasurer's Office expects to place about 20 percent of its investments in commercial paper. The office also has invested about $205 million in federal government and agency securities with maturities of longer than three years.

Holden noted that Amendment 5 also requires reporting of the status of the state's investments to the governor and the commissioner of administration. "It institutionalizes by law the highest accountability the State Treasurer's Office has ever had," Holden said.

"Our No. 1 priority in the investment of public funds is always safety, not earnings, and Amendment 5 in no way alters this philosophy," Holden said. "The additional earnings that could result is money the state can spend on education, health care and other services that does not have to come from taxpayers."

During the state's last full fiscal year, the Treasurer's Office's investment program earned more than $196 million in interest.

Adding commercial paper and extended maturities should allow earnings during the next year to keep pace with last year's earnings, despite a drop in interest rates and a lower investable balance due to large payouts for Article X income tax refunds.

Since 1993, state investment earnings have totaled more than $904 million, and earnings under Holden should eclipse the billion-dollar mark early in 2000.