Iowa's bin-busting revenue harvest yields little windfall

$688 million surplus expected to grow

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CEDAR RAPIDS — Thanks in large part to a strong ag economy, Iowa has managed to build a $688 million state budget surplus that is projected to grow to more than three-quarters of a billion dollars next year.

However, Iowa State Treasurer Michael Fitzgerald warns Iowan’s shouldn’t expect a huge windfall as a result of the surplus.

Even though the state has an average of $3 billion invested in short-term government securities on any given day, low interest rates dampen the impact of the Iowa’s bin-busting revenue harvest, the 30-year state treasurer said.

The state’s “long-term” investments stretch out as far as four years, according to Fitzgerald. However, most of the funds in the state coffers are in securities that mature in a year or less because “some of that has to be available tomorrow to pay bills.” For example, the state pays about $250 million a month in school aid to more than 300 school districts.

So most of the funds, including the surplus that is projected to grow to nearly $811 million in fiscal 2014, are in short-term investments earning about 44 basis points — roughly one-half of 1 percent, Fitzgerald said.

“It’s nothing to write home about,” he said, noting that 10-year Treasury bonds are earning about 1.7 percent.

If there is an upside to the low interest rates, Fitzgerald said, it’s that Iowans are able to borrow money cheaply.

“I guess it works both ways,” he said.

He estimates interest income on state investments will be about $8 million this year.

“That’s far less than the $100 million Iowa earned when interest rates were 6 to 7 percent a few years ago,” Fitzgerald said.

While there is a temptation to put the revenue in higher-yield investments, Fitzgerald, first elected in 1982, said “safety first” is his guiding principle.

“We don’t take much risk,” he said. “Our mandate is to keep it safe and have money available to pay bills.”

“When the market gives us the opportunity,” Fitzgerald said, his office invests money longer than a year. “But not lately.”

The “safety first” investment strategy was driven home when Florida lost more than $300 million on investments in the housing market during the mortgage crisis, Fitzgerald said.

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