UPDATE: The state's bond business: Shoffner still leaves questions | Arkansas Blog

Friday, September 21, 2012

UPDATE: The state's bond business: Shoffner still leaves questions

Posted By on Fri, Sep 21, 2012 at 6:27 AM

QUESTIONS BUT NO ANSWERS: Treasurer Shoffner.
  • QUESTIONS BUT NO ANSWERS: Treasurer Shoffner.
The Democrat-Gazette's Michael Wickline this morning explored further (pay wall) Legislative Audit's claim of an $835,000 loss on a state bond investment by Treasurer Martha Shoffner back in 2008. As the securities firm that sold the bond has already said, the sale netted the state $1.7 million in an actual gain on the sale, compared with the purchase price.

Auditors say, however, that the bond would have produced the $1.7 million plus $835,000 more if the bond not been sold, but instead held for the full five years until maturity next year. IF the security doesn't get called before its maturity date in June 2013, the auditors might have added. UPDATE: The $25 million bond in queston CAN'T be called. It's noncallable until maturity, with an interest rate of 4.25 percent, pretty good in this market.

One other question: I can't tell just yet if that $800,000 lost earning potential — it really isn't an actual loss of state money — was calculated after taking into account the earnings on the sale proceeds in alternate investments.
Surely they were reinvested somehow? Surely? Anybody know how? I'll ask Audit later this morning. I wonder too about how much attention Audit gave to analyzing how liquidity needs might guide decisions, or even the necessity, to sell investments.

UPDATE: I talked with deputy auditor Jon Moore who gave me the explanation I needed. (And I should add I overlooked in the Democrat-Gazette some of these same details in my reading this morning.)

The estimate of $835,931 in lost potential earnings DOES include interest earned on other investments made with the proceeds of the Jan. 22, 2010 sale of the $25 million bond purchased July 30, 2008.

Moore said the state made $1.677 million by selling the bond for more than the purchase price. It initially put the proceeds in a low yield money market fund. That money was reinvested three more times in different bonds, in each case with potentially higher interest rates, from 3 to 6.25 percent. But, these were callable bonds and all were redeemed before the higher interest rates took effect or provided much income, Moore said. (Each transaction produces a commission for a security dealer, of course).

The state figured it this way: Between the profit and subsequent interest earned, the state made $2,662,978. The original bond, held to maturity, would have paid $3,498,909, or an $835,931 difference. The brokers naturally have argued that every market wager can't be guaranteed and they had expectations for higher earnings. But expecting a callable bond with a 6 percent coupon not to be called is viewed by some is an unrealistic expectation.

The plan is to review more transactions dating back four years. Sounds prudent.

Again: No ringing defense of Shoffner intended. But I still think some aspects of this don't readily reduce to simple equations. Best example of that is Audit's questionable decision to highlight on a big TV screen what, by its own admission, was a poor comparison — Shoffner's investment yields versus yields of state pension systems, which don't face the same liquidity and statutory investment restrictions.

This much is clear: The treasurer's inability — still — to respond to questions about the transactions in question is, in itself, a telling comment on the competency of her investment knowhow. Or, after hearing the explanation on the one big transaction, it's perhaps evidence there isn't a good answer.

Tags: , ,

From the ArkTimes store

Favorite

Comments (5)

Showing 1-5 of 5

Add a comment

 
Subscribe to this thread:
Showing 1-5 of 5

Add a comment

More by Max Brantley

Readers also liked…

  • Federal judge wants John Goodson to explain class action maneuvering

    A show-cause order filed Monday by federal Judge P.K. Holmes of Fort Smith indicates class action attorney John Goodson has some explaining to do about the move of a class action complaint against an insurance company from federal to state court with an instant pre-packaged settlement that has been criticized as a windfall for Goodson.
    • Dec 22, 2015
  • 'Million-Dollar Thursday': A visit to Sherwood's hot check court

    We take a visit to the weekly hot check court in Sherwood District Court, the subject of a recent civil rights lawsuit filed by ACLU Arkansas and others, who say the system there results in a modern-day debtor's prison
    • Aug 25, 2016
  • Charter school accountability: Non-existent in Arkansas

    A state audit finds charter school spending violated state law, but the state Education Department says it has no responsibility for ensuring proper management of charter schools. Say what?
    • Mar 5, 2016

Most Shared

  • 'Cemetery angel' Ruth Coker Burks featured in new short film

    Ruth Coker Burks, the AIDS caregiver and activist memorably profiled by David Koon as the cemetery angel in Arkansas Times in 2015, is now the subject of a short film made by actress Rose McGowan.
  • Buyer remorse

    Out here in flyover country, you can't hardly go by the feed store without running into a reporter doing one of those Wisdom of the Heartland stories.
  • Not Whitewater

    Just think: If Democrats had turned out 78,000 more votes in three states in November, people could be reveling today in the prospect of impeaching and convicting President Hillary Clinton, not Donald Trump, as some Republican lawmakers had promised to try to do if she won.
  • Head-shaking

    Another edition of so-much-bad-news-so-little space.

Most Recent Comments

Blogroll

 

© 2017 Arkansas Times | 201 East Markham, Suite 200, Little Rock, AR 72201
Powered by Foundation