Tax Analysts Blog

In Defense of State Treasurers

Posted on Oct 23, 2013

An interesting article in the October edition of Governing notes that state treasurers' offices are increasingly coming under fire. The underlying reason, it says, is that state finances are tight and there is a growing concern over state pension liabilities. In response, some states, notably Delaware and Wisconsin, have considered eliminating the state treasurer’s office or shifting the money management responsibilities of the treasurer to a board or other executive agency.

South Carolina State Treasurer Curtis Loftis has been actively (and publicly) debating with the investment commission tasked with overseeing the state’s pension fund. Loftis believes the commission isn’t getting a sufficient rate of return from the pension fund and that other states do much better. But the commission is confident in its investment choices and doesn’t want to change its portfolio. The ensuing debate has gotten ugly. Most recently, the chief operating officer for the investment commission announced his resignation, saying he has been bullied by Loftis.

State and local government pension liabilities are a big issue, so it is encouraging that pension liabilities are coming to the forefront and being debated. It is an issue that must be addressed – and soon. Many states and local government pension plans are grossly underfunded. When those liabilities are added to state and local government health care liabilities, the result is staggering. It has been estimated that state and local government pensions are underfunded by at least $1 trillion. There have been a variety of proposals for how states can improve the situation, but it all comes down to one thing: They must stop robbing Peter to pay Paul. These liabilities will continue to increase, and states must do something about it.

But if -- and we’ll hope when -- states raise more money, it will be placed into a pension fund and must be managed by someone. So what role should a state treasurer play in managing state funds? Arguably, a major role. To start, treasurers are frequently elected, which provides a level of public accountability. If voters don’t like a treasurer’s performance, they can do something about it.

Accountability is good public policy. The Governing story notes the move by Delaware Gov. Jack Markell (D) to push through legislation that would have taken away many of the treasurer’s responsibilities and exempted the board that oversees the state’s investment portfolio from having to publish and accept public comments on its policy decisions. That seems to be the antithesis of good policy.

Still, it’s not yet an epidemic. State treasurers can take some comfort in the fact that their offices are not being eliminated across the board. In many states, the job remains high profile. Despite the personal controversy surrounding Michigan Treasurer Andy Dillion, the Michigan treasurer has assumed an important role in the past. Dillon spearheaded the recent overhaul of the Michigan corporate tax system. (Dillion has resigned effective November 1 because of unfavorable media attention over his divorce, but he will be replaced by Kevin Clinton, who was director of the Michigan Department of Insurance and Financial Services.)

There will always be disagreements when money is involved. And given the pressure being placed on state pension funds to perform, tensions are high. But state governors in particular should be cautious when attempting to strip an office of its duties. Moves like that have a nasty habit of backfiring

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