How did state earn more money? From fiscal 2005 to fiscal 2007, Oklahoma's investment earnings increased from $47.7 million to $148.2 million
How did state earn more money?

By Michael McNutt

Published: July 22, 2007

Interest earnings from the state of Oklahoma's investments have tripled in the past two years, bringing in nearly $150 million during the last fiscal year.

State Treasurer Scott Meacham said he obtained most of the higher yields by doing something most individuals should do — transferring surplus funds from a checking account that pays minimal interest to investments that earn more interest.

"That's exactly what we did, only with a lot more zeroes,” he said.

Meacham, appointed treasurer in June 2005, found that the state had about $1 billion more in its checking account — an overnight investments account from which the state's checks are written — than needed at any one time.

"We were holding way, way too much cash,” he said.

Meacham, elected to a four-year term in November, took that $1 billion out of the checking account, which is invested overnight and earns a relatively low interest rate, and placed it in investments that earned higher interest.

The treasurer's office had no set figure as a maximum cushion above what the state needs to pay bills and payrolls, he said. Meacham since has set that figure at $550 million.

Meacham made some other changes in the state's investments, such as dividing it into one-year, two-year and three-year investment segments. He also diversified investments.

Before, money was put solely in U.S. Treasury obligations; Meacham has placed some state funds in other government agency obligations, which also provided the state with better financial returns.

State laws limit investment possibilities for the treasurer's office, Meacham said. The treasurer's office cannot invest in stocks, for example. Instead, it is limited to a list of safe but low-yielding investment vehicles, such as U.S. Treasury obligations and U.S. government agency obligations. The treasurer's office also can invest in certificates of deposit in banks, but only if the bank pledges U.S. securities to back state deposits.

"We take no risk from a loss of principal standpoint in the portfolio,” he said.

Rep. Chris Benge, R-Tulsa, who as chairman of the House Appropriations and Budget Committee has squabbled with the Democratic treasurer about budget priorities, said it appears Meacham's office is doing a good job with state investments.

"I would just hope and express that the treasurer follow the prudent investor guidelines, and it sounds reasonable as to what he's doing,” Benge said. "Anytime we can generate more revenue for the state, that's obviously a good thing no matter who's doing it.”

Earnings on the funds help reduce the need for increased taxes or fees to fund state government.

"If we can generate more revenue without raising taxes, that's certainly a good thing,” Benge said.

The treasurer's office also benefited from higher interest rates and, because of the state's improved economy, had more money to invest.

Investment earnings for the state increased from $47.7 million for the 2005 fiscal year to $148.2 million for the 2007 fiscal year, which ended June 30. Earnings for the 2007 fiscal year were $49.9 million, or 50.8 percent, higher than the previous year.

"That's a significant amount of money,” Meacham said. "My staff's done a great job and we've worked hard and are accomplishing a lot.”

Investment earnings on state funds will not show such a significant increase for this fiscal year, Meacham said. He's projecting investment earnings for the 2008 fiscal year to bring in about $153 million.

It is possible earnings could reach about $160 million as the treasurer's office will invest some funds for the first time in federal government mortgage-backed securities, Meacham said.

Shortly after being appointed treasurer, Meacham asked four officials with financial institutions to look over the treasurer's investments and offer suggestions.

Hal Brown, institutional sales manager at Bank of Oklahoma, was one of those who offered advice to Meacham. The treasurer, he said, has been doing an "excellent job.”

"He's very smart, he's a demanding treasurer,” Brown said. "He continues to be creative in his thinking about the future. I know he intends to implement some additional changes to the investment portfolio as far as investment types but within a very fiscally conservative framework.”

Meacham's office manages about $5.1 billion. That includes about $3.5 billion for the state's general fund, and the rest is invested on behalf of specific state agencies. The almost $150 million in earnings were derived from the general fund investments.

Meacham is accustomed to scouting for better investment opportunities.

He came to the treasurer's office with banking experience. He served as chief executive officer of First National Bank & Trust of Elk City before being asked by then-newly elected Gov. Brad Henry to serve in 2003 as state finance director and as economic adviser on his Cabinet.

"The management of funds in the state treasurer's office is very, very similar to how a bank manages funds,” Meacham said. "A bank is paying out checks and getting deposits in; the state treasurer's office is doing the same thing.

"In the banking world, you're in a for-profit environment and it impacts the bottom line,” he said. "In the treasurer's office, you aren't in that for-profit world, but what I've tried to do is introduce those concepts so we're earning the taxpayers as much money as we possibly can on the funds that we manage.”

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