Note: This is part of the Josiah Bartlett Center’s week-long investigative series on the New Hampshire Treasury.

Part V: New Hampshire’s Investment Strategy

It’s safety, liquidity, and then return.

Once State Treasurer Cathy Provencher is sure she has enough cash on hand to pay the bills, she needs to decide where to invest the funds until they are needed. But Provencher says lawmakers shouldn’t count on her generating extra income from the state’s cash reserves, especially in this economy.

“Safety is number one. The risk level is number one. I will not sacrifice for a little bit of yield or return pickup for the safety of the taxpayers’ dollars. So safety is number one. Liquidity is number two. Then it’s return.” Provencher explains. “So first, I’m not losing any principle of taxpayers’ dollars. And we even through these very challenging last two years, there has been no principle erosion. We aren’t earning much, though, like most folks. Right now, we’re earning less than one-percent on our liquid assets. “

One pile of money

Earlier this year, House and Senate budget writers went on a treasure hunt, trying to find untapped “pots of money.” Surplus funds or unpopular programs would then be transferred to higher budget priorities. But Provencher argues that while lawmakers see dozens of segregated accounts for every agency and program, she deals with one large pile of money, spread over just a few bank accounts. In fact, she seemed excited at the chance to share her perspective.

“Many do not understand from the Treasurer’s perspective that it’s all pooled, other than the Turnpike System. The Turnpike System because we have specific bond resolutions related to its revenue bonds; those assets have to be physically separated. But Highway Funds, Education Trust Funds, General Funds, even the hundreds of separate and dedicated funds are all pooled and managed as pooled assets.”

The Department of Administrative Service is responsible for accounting for each program’s receipts and disbursements separately, but Provencher says she can’t operate that way.

“I’m sure, 100 years ago, the Treasurer probably did have all separate little bank accounts, maybe envelopes in the vault, of where separate cash was maintained. That is just not an efficient way to do business in 2009,” she adds. She says one sentence in the state’s statute authorizes her to comingle state funds, so long as Administrative Services keep ups with the accounting.

“Many of the statutes will say ‘The Treasurer shall maintain a separate and dedicated account for the operation of Skyhaven Airport’. Well, the Treasurer doesn’t have a separate bank account. It’s separately accounted for in the state’s accounting system,” Provencher continues. “I think many folks don’t recognize the difference. There’s one or two bank accounts where the checks and electronic payments are made out of, not all these separate agencies and multiple bank accounts.”

So where does New Hampshire do its banking? Where are the cash reserves kept?

“Most of our assets are maintained at TD Bank, Citizens, Bank of America; primarily at those three big banks because our deposits are collateralized,” Provencher says. She adds that her office has tried to give smaller banks a piece of the state’s business through an open CD auction, limited to $5 million increments. “The CD auction program has been in a bit of hiatus for the past six to nine months, just because CD’s just aren’t paying anything right now. When the market does correct, we will open that CD program back up, but that was our way in hopes of allowing our local state banks to participate in state business.”

In August, the Josiah Bartlett Center requested a snapshot of all liquid assets under management by the New Hampshire Treasury. A summary provided by the Treasurer’s Office, without account numbers, showed $463 million spread out over 45 accounts at ten financial institutions.

New Hampshire Treasury, August 25, 2009 Snapshot

Financial Institution	Balance	Financial Institution	Balance
Bank of America	$21,051,167.61	Laconia Savings	$443,489.49
Blackrock	$16,996,961,27	MBIA	$495,162.73
Citizens Bank	$193,852,361.26	TD Bank	$78,625,712.11
Dreyfus	$36,659,691.85	UBS Global	$4,736,107.00
Fidelity	$68,650,539.78	US Bank	$41,922,947.48

Source: New Hampshire Treasurer’s Office

By December, the total in these accounts had dropped to $380 million. Provencher says this is about as bare as the cupboard gets all year, since December is the largest month for state spending. Provencher has to pay bills for Catastrophic Aid, Adequacy Grants, Meals and Rooms Refunds, and meet a third payroll this month. But she says New Hampshire’s cash on hand will rebound when the state collects its quarterly business tax payments tomorrow, and received the proceeds from tomorrow’s $125 million General Obligation Bond sale next week.

New Hampshire Treasury, December 11, 2009 Snapshot

Financial Institution	Balance	Financial Institution	Balance
Bank of America	$22,227,032.40	Laconia Savings	$295,846.73
Blackrock	$17,352,296.04	MBIA	$24,204,332.48
Citizens Bank	$ 219,834,766.56	TD Bank	$34,866,404.29
Dreyfus	$12,669,936.05	UBS Global	$1,741,719.76
Fidelity	$23,708,794.60	US Bank	$47,382,533.22

Source: New Hampshire Treasurer’s Office

While the Treasury might be able to get a higher return with long-term investments, Provencher says with such a low cash reserve, she needs to make sure funds are available at any time by putting most of the state’s cash in Money Market Funds.

“We try to spread the excess cash around so that one firm or one Money Market Fund isn’t holding a big chunk of our assets,” Provencher explains. “We do have some Trust Funds, for example New Hampshire Hospital, the Veterans Home, and the Land Conservation Program have some assets that they hold in trust and we work with them to develop an investment policy where the primary goal isn’t liquidity. They are trying to build upon their principle for future purposes. “

But Provencher says she won’t be playing the market from the state’s coffers, even when the market starts climbing again.

“We do not go out and invest in stocks and bonds individually, for diversification purposes. I am not going to risk the state’s assets. Safety, liquidity, return,” she reiterates. “We keep our assets very liquid, very liquid.”

Opening the State’s Books

Provencher says she favors opening both the state’s bank statements and its investments to the public, but she says no one has ever asked before.

“I come from the Audit side, so I am a flag-carrying Right to Know 91-A,” referring to the number of New Hampshire’s Right to Know Law. “If that’s public information, I want to make sure you’ve got it.”

But Provencher says she can’t open up the state’s checkbook to public inspection, but only because she doesn’t keep it.

“I know you’re going to say, ‘What? You don’t maintain the checkbook?’ But remember that Administrative Services is writing the checks,” Provencher explains. “Treasury is making sure there’s enough cash in the bank for the checks that are being written, and then we are reconciling the checkbook to the bank accounts that are in our custody.”

Provencher says the daily transactions are actually kept at the Department of Administrative Services. The Josiah Bartlett Center requested access to the state’s transaction register from DAS several months ago.

And while Provencher says while her office wouldn’t be in charge of posting state financial data on the Internet, she knows it’s possible because her colleagues in other states have already done it.

“Each state is very different in who’s responsible for what, but the Treasurer in Nebraska has put something on his website, every check, all the details, everything is up on their website.”

In fact, NebraskaSpending.com, includes not only every payment the state makes, but a detailed breakdown of state tax receipts, contracts, and investments. The information isn’t instantaneous. As of December 3, the searchable database included expenditures through 2007 and contracts as recent as March, 2009. Provencher expects New Hampshire to eventually follow suit, once it ensures that private information can be protected.

“If there is anything with abused or neglected children or medical information, we’d have to be careful. We don’t want that information available to anyone, but for the most part, every check that’s written is public information,” she argues. “To have that information available, sure, I think that’s doable, and I think someday we’ll get there. I just don’t know what the time frame is. And of course that’s me taking as the Treasurer. I don’t know what the Commissioner of Administrative Services take is on that.”

The Treasurer may not have talked to Administrative Services about that but the Josiah Bartlett Center has. In fact, since April we’ve been working with them on a right-to-know request for the state’s checkbook – called the Detailed Transaction Register. Much like Nebraska and groups in more than half the states across the county have done, the Center is creating a website with a searchable database of every check written by the state of New Hampshire. It will be available to anyone, at any time of day, and all at no cost to the taxpayers of the state.

Such a website would be a valuable tool for lawmakers working on the budget, policy analysts, reporters, and any citizen interested in how their tax dollars are being spent. And the time frame could be sooner than Provencher might imagine. Our website is built and nearly ready to go live. Mostly we’re waiting on the data. Privacy concerns and the unusual size of our data request have been a major challenge for the Department of Administrative Services. However there may be light at the end of the tunnel. Recently the Department informed us we can expect the first batch of DTR data soon.

Josiah Bartlett Center Transparency Director Jay Flanders contributed to this report.

Part 1: New Hampshire Looking to Borrow $125 Million Next Week

Part 2: Living in a Cash Flow World

Part 3: Checking New Hampshire’s Credit Report

Part 4: Building Aid Moratorium Won’t Solve Building Aid Problem

Tomorrow- Part 6: Over New Hampshire’s Budget Horizon