Treasurer wants to ‘unleash the power’ of Ohio’s $ 20 billion investment portfolio

The state treasury office has $ 20 billion in its investment portfolio, plus $ 2.7 billion in the public rainy day fund and an “AA +” rating from Fitch Ratings. According to Ohio Treasurer Robert Sprague, the state’s strong liquidity position can be exploited by farmers, universities and hospitals to help lower borrowing costs.

Cleveland Clinic Pilot: “In March 2020, when the pandemic first hit the United States, the economy started to shut down and credit markets froze completely,” Sprague said.

While many companies had the option of consolidating costs and slowing spending in response to the pandemic, hospitals did not.

State health facilities had to “tackle the problem” and not move away from it, Sprague points out. the State through an emergency program to stabilize the variable rate demand obligation.

“We thought an investment in our Ohio hospitals was one of the best things we could do at the time,” Sprague said.

The move helped lower interest rates for healthcare providers, which had reached around 8%, bringing them below 2% over a six-week period. “It really helped our Ohio hospital systems weather the storm of this first wave of coronavirus,” he added.

The move helped hospitals ease debt service costs and provided a return to the state treasury, prompting Sprague to wonder what other ways he could “unlock the power of our $ 20 billion balance sheet. of Ohio dollars and again bring in Ohio taxpayer money to use for Ohio institutions. “

In early October, the state treasurer’s office announced three investment programs as part of its “Ohio Gains” initiative, aimed at lowering borrowing costs for the state’s hospitals, its 14 public universities and the farming community.

The plan, which takes advantage of Ohio’s strong liquidity position, includes the formalized version of a pilot program with the Cleveland Clinic that began in 2020. The program positions the Treasury as the buyer of last resort for large hospitals that use variable rate demand. bond debt instrument – a borrowing tool commonly used by large institutions to finance capital projects.

The proposal allows the state to use the treasury to support a hospital’s short-term debt, thereby reducing the variable rate.

The clinic has seen significant savings from the program, and now Sprague wants to expand it to help other hospitals looking to make capital investments in the state.

Ag-LINK: For farmers, the Ohio Gains initiative aims to remove a cap of $ 150,000 on loans acquired through the Ag-LINK program. The plan would modernize the 30-year-old program, allowing the Treasury to increase the maximum amount of low-rate loans based on current market conditions, while providing those loans to agricultural co-ops not eligible for the old program.

“Anyone in the agriculture industry will tell you that $ 150,000 doesn’t go very far these days. The prices of basic commodities, such as fuel, seeds and fertilizers, have just risen dramatically. we have to adjust the caps up, ”Sprague said.

Ag-LINK is one of many such programs that account for over $ 2 billion, or about 12%, of the state’s overall loan portfolio. The program allows banks to lend to eligible borrowers at 2% or 3% below-market interest rates when the Treasury deposits the same amount with the bank.

Public universities: The plan for the state’s four-year universities is to allow institutions to use the financial support received directly from the state as an asset that improves the institution’s credit rating, making it more attractive to seeking loans for investment projects, Sprague said.

The “state education share,” as it’s called, is the largest financial support schools receive from the state and, with nearly $ 2 billion paid to universities in Ohio in 2020 , this can be an important addition to a balance sheet.

“This creates a program that ensures (that) a bondholder (who) owns the university’s bond could be repaid their debt service with money from state education. if the university were to default, ”said Sprague, who adds that the default is extremely rare. . “It’s a way to use it (SSI) as insurance for bondholders, and it improves the university’s credit and lowers their borrowing costs,” he said.

Unspent debt service funds with large institutions like hospitals and universities can translate into millions of dollars in savings.

“In this interest rate environment, savings can be as much as one-fifth of a percent on a transaction, which, when you’re talking about hundreds of millions of dollars, adds up pretty quickly,” Sprague said.

New legislation: All three of Sprague’s proposals require changes or additions to the revised Ohio Code. So, in early October, state lawmakers introduced the corresponding bills to the Ohio House and Senate.

Republican Senator Michael Rulli of Salem and Jerry Cirino of Kirtland are the sponsors of Senate Bill 241, which was given to the Financial Institutions and Technology Committee the day after its presentation.

Cirino, who represents Portage and parts of Geauga and Lake counties and is a former Lake County commissioner and business owner, said the programs are an innovative way to leverage treasury assets with minimal risk. or zero for the state.

“He takes advantage of the liquidity of the Treasury,” he said. “And that just makes a lot of conceptual sense.”

The bill, he said, was proposed to provide assistance to the sectors hardest hit during the pandemic which are still in shock, even as other areas of the economy improve.

The senator worked closely with Sprague’s office to draft the bill to codify the three agendas, and both predict bipartisan support for the Senate and the associated Bill 440 sponsored by Republican Republican Representatives DJ Swearingen of Huron and Andrea White of Kettering.

“Universities, hospitals and farmers, all of whom need help right now,” Cirino said. “What this bill does is modernize things, but it takes the strengths that we have in Ohio and uses those strengths by putting them to work, in this case three groups that could certainly use our help in. this moment. “