July 14, 2013

To watch State Treasurer Chip Flowers as he discusses the Delaware State Treasury on Community Crossfire with Norman Oliver, please click here.

Source: Delaware State Treasury

The Delaware Economic Index for July 2013 provides key economic and financial data about the First State over the past 60 days. To view the complete Index, please click here. If you have any comments or questions, please do not hesitate to contact your Delaware State Treasury at (302) 672-6700 or visit treasury.delaware.gov.

Flowers calls for board members to resign

Source: The News Journal

The conflict between State Treasurer Chip Flowers and the state board tasked with overseeing $2 billion in state investments grew larger last week, as Flowers called for board members appointed by Gov. Jack Markell to resign and demanded that a Wilmington Trust executive no longer be involved with state business.

Some members of the Cash Management Policy Board have threatened to resign if the tensions with Flowers aren’t resolved. Last-minute legislation offered by Markell would have stripped the popularly-elected Flowers of some of his power and given more authority to the unelected board, but lawmakers didn’t act on the bill before adjourning the regular session last week.

The clash has not only pitted Flowers against the board, but reignited a rivalry between Flowers and Markell, who was treasurer for 10 years before being elected governor in 2008.

Flowers is targeting the board members’ communications with Wilmington Trust, one of the state’s money managers, after a vice president there complained that the bank was managing too small a portion of the state’s investment portfolio.

The complaint came from Nick Adams, a former deputy to Treasurer Velda Jones-Potter, who preceded Flowers in office and whom he defeated in the 2010 Democratic primary. Hours after lawmakers adjourned the session early Monday, Flowers said he called Wilmington Trust to demand that Adams be removed from the state account.

Adams serves as vice president for client development, working to recruit business for Wilmington Trust with institutional clients like municipalities and states.

Neither Adams nor Wilmington Trust would comment on the situation. Wilmington Trust is now owned by Buffalo, N.Y.-based M&T Bank.

Concerns from Wilmington Trust prompted board member Dave Marvin and board chair John Flynn to complain directly to the governor, members of his Cabinet and lawmakers that Flowers was ignoring the board’s votes by reducing Wilmington Trust’s share of state investments. Board members had voted to give banks oversight of roughly equal shares of state cash, and Wilmington Trust was being left behind, they argue.

They also worry that Flowers is investing too much cash in long-term accounts, against their guidance, and placing taxpayer investments at risk. Some short-term accounts in the portfolio are used to pay daily bills of the state. State pension investments are managed separately by Markell’s office.

“We obviously have a situation in which the Treasurer is unwilling to follow the directions of his civilian overseers,” Marvin wrote in a May 28 email to Flynn that was subsequently forwarded to state officials, including Markell, and obtained by The News Journal. Marvin’s email said Adams was “very upset about the new allocation that [Wilmington Trust] had been given” in the state investment portfolio.

Marvin, who has been among the largest donors to Markell’s Committee for a Better Future PAC, did not respond to requests for comment.

The state investments were lucrative for its five money managers last year, who shared about $2.3 million in fees for the work.

Board members, including Flynn and Secretary of State Jeff Bullock, say Flowers reduced Wilmington Trust’s share as he directed more state cash into long-term investments, ignoring board votes at an April 17 meeting. Flowers accused the board of doing the bidding of Wilmington Trust.

“I think it’s only fair and appropriate that the governor accepts the resignation of those who are involved in this,” Flowers said. “I think this sends a very bad signal that private individuals can seek to manipulate state funds.” Flowers said, “We have no shortage of great Delaware attorneys who understand fiduciary duty and some of the nation’s leading investment experts.”

Flynn and Marvin have served on the board since its inception in the early 1980s, a fact Flowers called “very troubling.”

In a statement, Markell backed the board, blaming the current climate on Flowers.

“The Treasurer’s decisions to ignore the determinations of the board are the source of the current controversy,” Markell said. “Time will tell if losses result from his actions. I am concerned by the precedent this sets, and not surprised that board members or a money manager would be upset that the Treasurer ignored the board’s decisions.”

Flowers shot back, responding that, “As the governor is well aware, I can spend most of my day criticizing some of the economic policies of the Markell administration but I have chosen not to do so. We’re trying to give the governor the benefit of the doubt even though Delaware has experienced anemic economic growth and we’ve lost millions on economic development projects,” Flowers said.

Board members originally threatened to resign after Marvin’s email regarding Wilmington Trust’s allocation in the portfolio generated a new round of controversy. In a separate May 28 email copied to Markell, as well as public board members Bullock and Finance Secretary Tom Cook, Flynn said he saw “no reason to meet for the sake of meeting. … If you would prefer that I resign, then I am willing to do so.”

Flynn delivered the same message to lawmakers on June 4.

“Currently we find our policies and guidelines with respect to the allocation of the state’s funds being countermanded and ignored, which the board believes is not in the best interests of the state,” Flynn wrote in a memo sent to lawmakers. “Given that our policies and guidelines are being overruled, the private members of the Board see no reason to continue to meet.”

With a single day left in the legislative session that ended June 30, Senate President Pro Tem Patricia Blevins, D-Elsmere, introduced legislation authored by Markell’s office to gut Flowers’ powers, giving the board total control over the state’s $2 billion portfolio.

The bill also would have exempted the board from the Administrative Procedures Act, which would require the board to publish and accept comments on policy decisions. Blevins did not bring the legislation up for debate last Sunday after a private meeting with Flowers, Bullock and Cook appeared to resolve some of the issues between the board and the treasurer. Not all Democrats were on board with the bill.

“I don’t believe we have a right to impose the governor’s will or even our own will on an independently elected office,” said Rep. John Kowalko, D-Newark. “The [Markell] administration has so far seemed to be too heavily weighted toward corporations and businesses and banks. I need independence. That’s what an elected office brings.”

Kowalko noted that Markell has not always been one to follow the direction of state boards, either. Markell was behind legislation this year that allowed Alabama-based HealthSouth Corp. to build a rehabilitation hospital in Middletown without a hearing before the Delaware Health Resources Board.

In 2011, Markell replaced dissenting members of the health resources board during its review of HealthSouth’s application and others resigned in protest, accusing Markell of improper political meddling. Markell signed the HealthSouth legislation on June 25.

Nevertheless, Blevins expressed concern this week that the fight over state investments had flared anew, confirming the bill will still be alive when lawmakers return to Dover in January.

“I do wish that he would at least try to work things out,” Blevins said of Flowers. “Sometimes I think it’s shooting from the hip. It’s just not productive, it’s not healthy.”

At the center of the controversy is the $2 billion in state cash managed by Flowers and the board. Flynn and other board members contend that, in April, they voted to allocate the funds equally between short-term and longer-term accounts to protect the state from losses created by spiking bond rates.

Board members also contend they wanted money allocated equally among managers – the source of the clash over Wilmington Trust’s portion of the portfolio. Draft minutes from the April 17 board meeting, where votes were taken, show the board did vote to equally disburse the funds, but with a 5 percent to10 percent cushion to account for fluctuations in short-term accounts.

Wilmington Trust, as of last week, held roughly $195 million in state cash, or about 21 percent of the state’s short-term portfolio, according to the treasurer’s office. Last March, when investment firm Credit Suisse evaluated the investment portfolio, Wilmington Trust held more than $285 million. Roughly 58 percent of the state’s cash was invested in longer-term accounts as of last week.

Flowers said the reduction in Wilmington Trust’s holdings came as a result of “compliance” issues, saying it was difficult to retrieve money from Wilmington Trust to pay state bills. He also argues that board members do not have the authority to micromanage the investment decisions typically made by his office.

Flynn and other board members say the treasurer is flagrantly ignoring their orders.

“The issue facing the state is, is the treasurer going to follow the guidelines that were established by the Cash Management Policy Board? Calling for resignation of two members, or all five members of the private sector, is not the issue,” Flynn said. “The issue is the board made some policy guidelines. They are not being followed.”

Source: Delaware State News

DOVER —The state Senate at 12:35 a.m. passed the original version of legislation that will allow charitable gaming to continue at veterans clubs throughout the state.

Representatives scrambled to pass the bill before the clock struck midnight Sunday, when the temporary agreement allowing slot machines at veterans organizations throughout the state was to expire.

The state’s House of Representatives by a vote of 30-2 passed Senate Bill 112 in its original form, which legally allows nationally recognized veterans and fraternal organizations to own and operate video lottery machines. The Senate on June 11 passed an amended form of the bill that added community organizations and local nonprofits to the list of clubs allowed to have machines. But the House nixed that amendment, which then sent the bill back to the Senate late Sunday.

With a vote of 19 yes and 2 not voting, the Senate passed the bill, its last act before recessing the special session.

State Rep. Earl G. Jaques, D-Glasgow, introduced the amendment Sunday evening that negated the Senate’s bill.

“The Senate amendment completely changes the view of the bill,” Rep. Jaques said, noting that there is no way to track a concrete number of organizations that would be added under the charitable gaming legislation.

Under the original bill, charitable gaming organizations, monitored by the Delaware Lottery Office, will receive 60 percent of proceeds after players are paid, leaving 40 percent to the state of which 1 percent of the state’s proceeds will be set aside to fund programs for the treatment, education and assistance of compulsive gamblers and their families.

“We have an unknown number of organizations being added, so why would we add those organizations here at the last minute?” Rep. Jaques asked.

Many Wilmington legislators raucously opposed Rep. Jaques’ measure, claiming the Senate’s amendment would help Wilmington-area veterans who do not have access to Moose lodges or veterans clubs outside of the local nonprofit organizations.

“What kind of process and politics is that?” Rep. Gerald Brady, D-Wilmington, said. “That’s not fair, and that’s not justice.”

Aid granted
After a lengthy break, the House returned to session shortly after 9:30 p.m. and quickly and unanimously approved the $44.7 million grant-in-aid bill, which outlines spending for community projects and nonprofit organizations such as the Modern Maturity Center and volunteer fire departments, among others.

Watching and waiting
State Treasurer Chipman “Chip” L. Flowers sat watch in the Senate Sunday hoping lawmakers there didn’t act on a bill that he said would hamper his office’s ability to meet daily cash flow obligations to the state’s $2 billion portfolio and threaten the transparency of the Cash Management Policy Board.

Though he acknowledged that the board needed revisions, it wasn’t through changes outlined in Senate Bill 151, sponsored by Sen. Patricia M. Blevins, D-Elsmere, and Rep. Peter C. Schwartzkopf, D-Rehoboth Beach.

Mr. Flowers spent the weekend seeking opposition to SB 151 and said Sunday night that he had 10 to 15 senators and roughly that many representatives who had expressed concern about the proposed bill.

“We are very hopeful. I think there is no problem with the treasury. We are making millions of dollars,” he said. “People want to make sure that their treasury remains independent,” with investments made in the best interest of taxpayers, not on personal interests.

“That is very important to the people of the state of Delaware. We are not risky with their money,” he said. “We need a board that’s active, responsive and not going to ask the treasurer to do something that is counter to the people of the state of Delaware.”

Senate Bill 151 would grant members of the Cash Management Policy Board the right to allocate state funds to banking institutions and exempt the portfolio from open government requirements.

The bill’s synopsis said it clarified the original intent of the board’s powers, which are to protect state investments through oversight. The act clarifies that the board is exempt from the Administrative Procedures Act, since decisions need to be made in a timely matter as a result of changing market conditions.

The Delaware State N.A.A.C.P. circulated a copy of a letter sent to Gov. Jack Markell outlining concerns with the legislation, including the impression that the timing on the final day was an effort “to sneak this legislation in at the end of the legislative session rather than have the bill placed on the floor and provide the opportunity for the bill to be aired before the legislature.”

As of 10:30 p.m. the Senate hadn’t acted on the proposed legislation.

Juvenile sex offender bill
The state House gave final legislative approval to a bill giving Family Court judges the discretion to determine whether certain juvenile offenders should be declared sex offenders subject to inclusion on the state’s sex offender registry.

The bill applies to juvenile offenders who were under age 14 when the offense was committed or who were older than 14 but did not commit certain offenses, including offenses that require registration under the federal Adam Walsh Act.

The legislation also excludes crimes in which the victim is 5 years old or younger.

The bill, which now goes to Gov. Markell, also allows for the review of certain offenders who already are on the state’s sex offender registry.

Source: Delaware State News

DOVER — In a letter e-mailed to state legislators Friday morning, state treasurer Chipman “Chip” L. Flowers stated his strong opposition to proposed legislation regarding the state’s $2 billion portfolio he said would hamper his office’s ability to meet daily cash flow obligations.

Treasurer Flowers also said Senate Bill 151 would grant members of the Cash Management Policy Board the right to allocate state funds to banking institutions and exempt the portfolio from open government requirements.

The bill’s synopsis states that the act clarifies the original intent of CMPB powers, which are to protect state investments through oversight. The act clarifies that the board is exempt from the Administrative Procedures Act, since decisions need to be made in a timely matter as a result of changing market conditions.

In an email to local media, Treasurer Flowers described the bill as “nuts” and legislators are trying to sneak it through on the last day of the session on Sunday.

The bill is sponsored by Sen. Patricia M. Blevins, D-Elsmere, and Rep. Peter C. Schwartzkopf, D-Rehoboth Beach.

The legislation states that the board must approve the selection of financial institutions to provide banking and investment services conducted on an open and competitive basis. The board will be responsible for setting police regarding allocation between short and long term investments, and allocation of funds to the financial institutions.

If SB 151 is passed, Treasurer Flowers said his office cannot be responsible for ensuring state obligations are paid and “the record should note that this could impact our ability to protect the state’s AAA bond rating …”

The treasurer said the bill fosters open government transparency issues and “would give this Board the ability to conduct independent allocation decisions in secret.

“This is a practice that the state treasury cannot support or condone and no other state has granted the ability to allocate treasury funds to a board operating in secret and counter to their treasury.”

Treasurer Flowers suggested that his office would defer enforcement of the bill to the governor’s office and legislative branch after a constitutionality review by the Supreme Court of the State of Delaware.

Since his office was not consulted in the crafting of SB 151, the treasurer said he could not issue a full position statement before a possible vote on the measure this weekend. Treasurer Flowers said he would have consulted with the treasury’s independent financial adviser under what he described as “normal” circumstances.

Treasurer Flowers Commends Results of Historic Open and Competitive Selection Process

PRESS RELEASE

For Immediate Release: April 10, 2013
Contact: Deputy State Treasurer Erika J. Benner at (302) 672-6700 or erika.benner@state.de.us.

DOVER, Del. —The Delaware State Treasury today announced its proposed slate of investment managers to assist the Treasury in managing the state’s $2 billion investment portfolio. The announcement comes at the conclusion of an open and competitive selection process. A historic number of responses (110) to the Request for Proposal (RFP), ranging from small entrepreneurships to global banks, were received by the Treasury to manage the state’s liquidity and reserve mandates under the portfolio. The RFP selection committee (the “Committee”), appointed by State Treasurer Chip Flowers, was comprised of Treasury staff and a designated representative of the Cash Management Policy Board. Credit Suisse Securities (USA) LLC served as financial adviser to the Committee.

After an extensive review process, the Committee proposed the following investment firms to serve as the state’s investment managers, subject to execution of a definitive agreement with the Treasury:

Liquidity
Cutwater Asset Management
M & T Bank, N.A.
PFM Asset Management LLC
Wells Capital Management

Reserve
Chandler Asset Management
Federated Investors, Inc.
J.P. Morgan Asset Management
Morgan Stanley Investment Management
Schroder Investment Management North America, Inc.

Upon receipt of the Committee’s recommendations, Treasurer Flowers stated, “The historic number and quality of applicants exemplifies the benefits of an open and competitive selection process. I am very proud that we continue to open the door of opportunity for those seeking to do business with the Treasury, which ensures the state hires the best group of diverse investment managers at a cost effective rate.”

At the start of the selection process, Treasurer Flowers charged the Committee with undertaking the following: (i) increase the number of investment managers to encourage competitive performance; (ii) decrease the fees charged by the state’s investment managers to generate cost savings for taxpayers; (iii) promote diversity and inclusivity; and (iv) propose investment managers that offer the best value for investment services to the People of the State of Delaware.

The selection process was part of a multi-phase plan proposed and enacted by Treasurer Flowers to increase returns on the portfolio without increasing the current level of risk and ensure fees paid to investment managers are in line with the portfolio’s returns. Under the plan, the Treasury has reversed the previously declining returns on the portfolio and increased returns for three consecutive fiscal years.

Treasurer Flowers further stated, “The bold actions taken as part of our multi-phase plan to improve the performance of the state’s investment portfolio has resulted in millions in additional interest income for the state without increasing risk. With the completion of this phase of the plan, I am confident that the proposed investment managers will meet the standard of excellence that the People of the State of Delaware expect and rightly deserve by further improving our portfolio.”

For additional information, please visit the Treasury’s website at treasury.delaware.gov.

Immediate Release

State Treasurer Chip Flowers and the Delaware State Treasury have released the March 2013 edition of the Delaware Economic Index, which rated the state’s economic climate over the past (60) days as ‘Fair’. For the complete Index, please click here. If you have any comments or questions, please do not hesitate to contact your Delaware State Treasury at (302) 672-6700 or visit our website at treasury.delaware.gov.

Press Release Issued by Delaware State Treasury

State Treasury Projects Second Year of Improved Returns for State Portfolio

DOVER, DE (MARKETWIRE via COMTEX) — On Monday, February 11, Delaware State Treasurer Chip Flowers told the General Assembly’s Joint Finance Committee that the interest earned on the state’s investment portfolio will continue to grow this year, the second year of improved performance following a drop in interest earnings from FY 2009 through FY 2011.

Gross earned income from the portfolio declined from $37.8 million in Fiscal 2009 to $19.3 million in Fiscal 2011, but increased to $20.9 million in Fiscal 2012 (the first full year in office for Treasurer Flowers), and is projected to increase to nearly $22.5 million by June 30, the end of the current fiscal year.

The increase is primarily the result of a gradual restructuring of the investment portfolio following a report last year by an independent advisor, Credit Suisse Securities (USA) LLC, which found that the portfolio had been generating historically low returns that were failing to keep up with the pace of inflation.

“The improved returns continue to demonstrate that we are on the right track — improving the portfolio’s performance without increasing risk by implementing best practices with the advice of independent financial experts. Despite economic uncertainty arising from our national’s fiscal policies, the Delaware State Treasury emerged from 2012 with numerous accomplishments in its service to the People of the State of Delaware,” Flowers said.

At the annual hearing before the budget-writing Joint Finance Committee, Flowers also released his Third Report on the Delaware State Treasury, a 12-page document that outlines the strengths of the office, the accomplishments during the second year of his administration, and challenges and initiatives for the coming year.

“Promoting an open and competitive bid process for treasury contracts, realigning our state investment portfolio, adopting historic measures to protect public funds and removing barriers to economic opportunity are just a few of the many actions undertaken over the past 12 months in order to ensure the safety and stability of public credit and funds as well as the financial health of the State of Delaware,” Flowers said in releasing the report, which is available online at the Delaware State Treasury website, http://treasury.delaware.gov/ .

At the annual hearing, Flowers supported the $1.25 million General Fund budget recommended for his office for FY 2014 by Gov. Jack Markell.

In his report, Flowers noted a significant number of achievements including:

– Signing a directive to protect and collateralize state funds to coincide with the expiration of the Federal Deposit Insurance Corporation’s Transaction Account Guarantee Program;
– Issuing an open and competitive proposal for choosing an increased number of investment managers;
– Negotiating reductions in the fees charged by the state’s current investment managers;
– Establishing new performance measures for the state’s investment managers;
– Launching a prepaid debit card program to reduce the number of checks issued by the Treasury;
– Creating the Delaware Stock Index; and
– Receiving White House recognition for the Treasury’s financial literacy programs.

The Report is available in full on the Treasury’s website (treasury.delaware.gov).

For more information on the Delaware State Treasury, please visit www.treasury.delaware.gov, send an email to statetreasurer@state.de.us, or call 302-672-6700.

Immediate Release

State Treasurer Chip Flowers and the Delaware State Treasury have released the January 2013 edition of the Delaware Economic Index, which rated the state’s economic climate over the past (60) days as ‘Fair’. For additional information or to obtain a copy of the Index, please click here.

Published by The Wall Street Journal on December 25, 2012

Small Banks to Depositors: Trust Us
Dec. 31 Expiration of FDIC’s Unlimited Guarantee Drives a Scramble to Allay Customers’ Concerns

Small banks around the country are spending the last days of 2012 trying to assure customers they can be trusted to hold their deposits, as the government’s unlimited insurance on certain accounts expires this year.Many of the affected accounts are essentially noninterest-bearing checking accounts that hold more than $250,000. The Federal Deposit Insurance Corp. granted unlimited insurance to these accounts—often held by businesses, municipalities and other entities that require quick access to large amounts of money for payrolls and other needs—at the height of the financial crisis to help instill confidence in the nation’s smaller banks. The goal was to prevent account holders from moving money from smaller institutions to larger ones viewed by customers as less likely to fail.

After the program, known as the Transaction Account Guarantee, expires Dec. 31, noninterest-bearing accounts will receive the same $250,000 insurance coverage that the FDIC provides for other depositors. Roughly $1.5 trillion of deposits are covered by the expiring guarantee, according to the FDIC.

The change has executives at small banks reaching out to affected customers to encourage them to stay put. “We want people to know their money is safe at our bank,” said Paul Murphy, chief executive of Cadence Bancorp LLC in Houston. The holding company owns Cadence Bank, which has more than 100 branches in six states. The bank has been preparing a flier to alert customers to the insurance change and explain it to them. Cadence has $5.4 billion of assets and $3.1 billion of deposits.

At Broward Bank of Commerce, “we are telling our customers that we have a loan portfolio that has no nonperforming loans, which is a very clear statement that our bank is very solvent, very safe and very secure,” said Keith Costello, chief executive of the bank, which concentrates on small and midsize businesses. The Fort Lauderdale, Fla., company, a unit of Broward Financial Holdings Inc., has $129 million of assets and $117 million of deposits. Mr. Costello said he has been in touch with the bank’s larger customers and has received some calls from depositors who had questions about the change.

Banks also are helping affected depositors shuffle money into alternatives that can protect them from the insurance issue. Among other options, they can buy products that allow depositors to spread money across multiple banks to ensure the funds are insured. Such strategies could help reduce the movement of cash into money-management firms that fear a flood of new funds could further depress low yields. In recent weeks, BlackRock Inc. BLK -1.02% and Federated Investors Inc. FII -0.54% have told investors that some money-market funds could be closed to new customers as a result of the insurance expiration, people familiar with the situation told The Wall Street Journal earlier this month.

Michael Tuttle, the CEO of a community bank in Vermont, said his firm has identified a handful of customers who exceed the $250,000 insurance threshold. “We started sending notices to them about a month ago about the prospect and are reaching out to them individually to talk about their preferences,” said Mr. Tuttle, who runs Merchants Bank, a unit of Merchant Bancshares Inc. MBVT +0.07% in Burlington. The bank has $1.7 billion in assets, $1.2 billion in deposits and about 30 branches.

The expiration of TAG comes after smaller banks unsuccessfully lobbied Congress to extend the unlimited coverage on the grounds that its elimination would give an unfair advantage to large banks. They also said that the guarantee is good for the financial system because it helps ensure that deposits are diversified among banks of all sizes.”No one knows how much money will flow out of these banks, but the last thing we need is any more concentration in those large institutions,” said Paul Merski, chief economist for the Independent Community Bankers Association, a trade group that pushed to get the guarantee extended.Bankers say that municipalities, nonprofit groups and law firms are particularly sensitive to the insurance guarantees because their deposits come from taxpayers, clients or donors and therefore have a stronger fiduciary duty.

Chip Flowers, the state treasurer of Delaware, earlier this month issued an order that requires all of the state’s noninterest-bearing deposits to be backed by bank collateral. Delaware typically has between $200 million and $400 million sitting in noninterest-bearing accounts. Mr. Flowers said the state is now negotiating those collateralization agreements with its six banks, including Wells Fargo WFC -0.29% & Co., PNC Financial Services Group Inc. PNC -0.99% and M&T Bank Corp. MTB -0.33%. “It has been a pain, but at the same time it is necessary—why would you put taxpayer money at risk?” Mr. Flowers said.

Several bank executives said they haven’t seen any large withdrawals so far, but acknowledge that such a move could happen in the future—especially if the economy weakens. That could be bad news for small institutions that are having a tough time navigating a low interest-rate environment and tepid loan demand. “Any large movements of high-value account deposit balances out of smaller institutions with weaker profiles could potentially contribute to further consolidation among small banks, which already face elevated compliance costs, eroded net interest margins, and a need to retain larger amounts of regulatory capital,” Fitch Ratings said in a news release last week.

To view the complete article, click here.