Oct 10, 2008: The First Priority of the State Treasurer’s Office is the Safety of Public Funds

The volatility and turbulence in the financial market is causing concern and anxiety across the nation. From Fannie Mae and Freddie Mac being taken over by the Federal Housing Finance Agency in early September to the economic stabilization bill passed by Congress and signed by President Bush last week, the news about the economic environment has been overwhelming. You may be wondering how recent events have affected State Treasurer’s Office investments. As your State Treasurer, my first priority is the safety of public money. My staff is working tirelessly to protect and safeguard the state and local government funds that we manage and invest.

In this economic environment, there has been concern about retirement funds. The State Treasurer’s Office does not manage the retirement and pension funds for public employees and teachers or the state’s permanent funds. However, as State Treasurer I do serve on the state’s investment and pension fund boards. As a board member, I have a fiduciary responsibility to monitor and evaluate the management of these funds. I assure you that I have confidence in the competence and experience of the pension and investment board advisors and staff investing these funds to the best of their ability.

The State Treasurer’s Office manages three portfolios – the state’s general fund, the state’s bond funds and the local government investment pool. All of our investments are managed in compliance with state law and the State Treasurer’s Investment Policy, which is developed with the advice and consent of the State Treasurer’s Investment Committee and the State Board of Finance. All investment decisions are made based on the following order of priorities: Preservation and protection of invested principal; maintenance of sufficient liquidity to satisfy governmental cash flow needs; and maximization of the return on investments once the first two priorities are satisfied.

The conservative investment strategy of safety, liquidity and return – in that order – is intended to protect public money and does not allow for investments in stocks. All of the securities we purchase must be of investment grade, meaning the securities must have a rating of “A-” or better. Additionally, we purchase securities with the expectation that the investment will be held until maturity. Allowable investments for the State Treasurer’s Office include U.S. Treasury securities; U.S. government agency securities; certificates of deposit, or CDs; commercial paper; corporate bonds; asset-backed obligations; and tax-exempt municipal bonds. Allowable shorter-term investments include money market funds and overnight investments.

The State Treasurer’s Office currently invests in CDs at various banks statewide. We are confident that the New Mexico banks holding public money deposits are sound. Cash investments in bank CDs and overnight investments are collateralized by U.S. government securities. Additionally, Investment staff continuously monitors bank activities and works closely with the Financial Institutions Division of the New Mexico Regulation and Licensing Department.

In addition to concerns in the financial market, you may have learned about the credit crisis plaguing the nation’s economy. As a result of the tightening credit market, businesses that sell commercial paper to investors as a short-term IOU to finance day-to-day operations are having difficulty finding investors. In an effort to stimulate the credit market, the Federal Reserve has decided to purchase from businesses some of these short-term debts. The commercial paper the State Treasurer’s Office holds is a safe investment that will not be affected by the Federal Reserve’s credit plan.

The State Treasurer’s Office is also responsible for managing cash to pay the state’s expenses. You may have heard news that some states do not have enough funds to meet state operating expenses. For the foreseeable future, New Mexico has sufficient reserves and the general fund portfolio that we manage has sufficient balances to pay the state’s bills. New Mexico is in no way reliant on accessing the short-term market to fund state operations.

This is a complex market that everyone is working to get a handle on at the state and federal levels. I am optimistic that federal measures, such as economic stabilization package, will facilitate the return to an orderly functioning of financial markets and restore confidence in the nation’s banking system. At this time, New Mexico is able to weather the storms in the current economic environment.