Inventory carrying costs were reduced, and commerce became more efficient. While government runs on human resources rather than inventory, the same concept applies: taxpayers would prefer to fund government’s payroll when needed, not a year in advance.
Generally, the State of Nevada operates with cash on hand about equal to ten weeks of expenses, roughly $2- to $3-billion. These funds are maintained in a series of investments that help manage cash flow.
The mechanics of managing those investments falls to Nevada’s Treasurer. But do you know how the investment policy is determined?
Nevada Revised Statute 355 is titled “Public Investments” and creates a 5-member Board of Finance. One member is the Governor, who appoints two other members. The Governor’s majority is joined by the state Controller and Treasurer. Together, they meet at least every four months to “review and approve or disapprove the policies established by the State Treasurer for investment of money of the State.”
The current policy is:
The permissible investments of the General Portfolio include US Treasury and agency securities, repurchase agreements, high quality corporate notes and commercial paper, negotiable certificate of deposit, municipal bonds and banker’s acceptances. These securities are diversified to prevent over-concentration in a specific maturity, a specific issue, or a specific class of securities. The targeted duration of the portfolio is one and a half years, with no security extending longer than ten years.
The State Treasurer maintains a conservative, moderately active investment strategy. Cash flow forecasts are prepared to identify operating cash requirements that can be reasonably anticipated. To maintain sufficient liquidity, a portion of the portfolio is structured so that securities mature concurrently with cash needs in the short and medium term. Monies deemed to have a longer investment horizon, are invested to take advantage of longer term market opportunities.
The state’s investment policy guides what happens to money-on-hand before we need it to pay bills. But sometimes the state needs money for a project before the taxes are collected – most commonly in conjunction with constructing a building or road. A large sum is borrowed, then paid back from future taxation a little bit each year, similar to a home mortgage. It turns out that borrowing a large sum and purchasing an office building is cheaper over twenty or thirty years than renting that same office would have been.
One component of public debt that the Treasurer does not manage is the liability for paying off the retirement promises made to government employees – the Public Employee Retirement System or PERS. This is the “unfunded liability” we’ve been hearing about. About twenty-five cents of every dollar paid a public retiree in Nevada today is taken from current contributions by current employers and employees, rather from money saved up over the course of the beneficiary’s working years. This is not sustainable.
The PERS liability does not accrue entirely to Nevada state government, however, as local governments are also participating in PERS. In Nevada, local governments in Clark and Washoe Counties have the highest or almost highest compensation amongst their US local government peers, according to the US Census Bureau, so it seems likely that most of the unfunded PERS liability actually belongs to local governments in Clark and Washoe Counties.
All of these elements come together in the Nevada Treasurer’s primary responsibility – to manage the state’s cash flow. LW