E20B
State Treasurer
Operating Budget Data
($ in Thousands)
FY 06 FY 07 FY 08 FY 07-08 % Change
Actual Working Allowance Change Prior Year
General Fund $4,380 $4,985 $5,092 $106 2.1%
Special Fund 828 812 1,727 916 112.8%
Reimbursable Fund 33,710 34,606 39,517 4,911 14.2%
Total Funds $38,918 $40,403 $46,336 $5,933 14.7%
• A proposed fiscal 2007 budget deficiency appropriation would add $163,000 to provide funds
for legal services and other contractual services related to bond sale expenses.
• The fiscal 2008 allowance increases $5.9 million over the current year’s budget representing a
14.7% increase. When one-time health savings are adjusted for, the underlying increase is
$6.1 million, or 15.2%. Increases for insurance coverage ($4.8 million) and bond sale
expenses ($963,000) account for the majority of the increase.
Personnel Data
FY 06 FY 07 FY 08 FY 07-08
Actual Working Allowance Change
Regular Positions 55.00 59.00 59.00 0.00
Contractual FTEs 1.00 0.00 0.00 0.00
Total Personnel 56.00 59.00 59.00 0.00
Vacancy Data: Regular Positions
Turnover, Excluding New Positions 1.99 3.37%
Positions Vacant as of 12/31/06 11.00 18.64%
• The number of regular positions in the allowance remains unchanged from the current year.
The office has no contractual employees.
• The State Treasurer’s Office reports that six positions have been filled since the beginning of
calendar 2007 and several others are in process with offers having been extended.
Note: Numbers may not sum to total due to rounding.
For further information contact: Steve McCulloch Phone: (410) 946-5530
Analysis of the FY 2008 Maryland Executive Budget, 2007
1
E20B – State Treasurer
Analysis in Brief
Major Trends
Bank Accounts Are Reconciled Timely: Dramatic improvement has occurred since fiscal 2003 in
the average number of days it takes to reconcile the bank accounts administered by the State
Treasurer’s Office.
Investment Earnings Are Maximized: Unlike previous years, the State portfolio did not out perform
the 90-Day U.S. Treasury Bill rate in fiscal 2005 and 2006.
Issues
Unfunded Liability in the State Insurance Trust Fund Decreases: The unfunded liability in the
State Insurance Trust Fund decreased from $19.5 million in fiscal 2005 to $7.7 million in fiscal 2006
due to fewer than anticipated losses. Should this trend continue the unfunded liability will be
eliminated in the next few years.
Bond Sale Expenses Increase to Allow Issuance of Variable Rate Debt: The fiscal 2008 allowance
includes $963,000 for expenses related to the issuance of variable rate debt. As yet, written policies
on when and how variable rate debt will be issued have not been developed.
Recommended Actions
1. Add a section to increase turnover for the State Treasurer’s Office due to high vacancy rate.
2. Add language to E20B03.01 Bond Sale Expenses restricting funds for variable rate debt until
written policies are developed.
Analysis of the FY 2008 Maryland Executive Budget, 2007
2
E20B
State Treasurer
Operating Budget Analysis
Program Description
The State Treasurer is responsible for the management and protection of State funds and
property. To carry out these responsibilities, the State Treasurer selects and manages the depository
facilities for State funds, issues or authorizes agents to issue payments of State funds, invests excess
funds, safeguards all State securities and investments, and provides insurance protection against
damage to State property and liability of State employees. The State Treasurer also administers the
sale of Maryland general obligation bonds and serves as a member of the Board of Public Works.
The State Treasurer’s Office (STO) consists of four programs: treasury management; insurance
management; insurance coverage; and bond sale expenses.
The goals of the Treasurer’s Office are to:
• accurately reconcile all Treasury State bank accounts;
• maximize investment earnings for the State’s surplus funds in accordance with State law; and
• process all agency and third party claims submitted to the Insurance Division.
Performance Analysis: Managing for Results
Bank Accounts Are Reconciled Timely
As shown in Exhibit 1, the number and dollar value of total receipts and disbursements from
the bank accounts administered by STO have increased since fiscal 2003. Since 2003, there has been
dramatic improvement in the length of time it takes to reconcile all accounts dropping from over 60
days on average in fiscal 2003 to under 6 days in fiscal 2006.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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E20B – State Treasurer
Exhibit 1
Total Receipts and Disbursements and Days to Reconcile All Accounts
Fiscal 2003-2008
Average Days to Reconcile All Accounts
>60 >30 >10 <6 <5 <4
14 $250
Total Receipts and Disbursements
12
Total Transactions (Millions)
$200
10
($ in Billions)
8 $150
6
$100
4
$50
2
0 $0
2003 2004 2005 2006 2007 2008
Est. Est.
Total Receipt and Disbursement Transaction Receipts and Disbursements
Source: Governor’s Budget Books, Fiscal 2008
Investment Earnings Are Maximized
STO is responsible for maximizing investment earnings for the State’s surplus funds. It is
limited by law in the types of investments it can make. Exhibit 2 compares the rate of return on the
State’s investment portfolio compared with the average 90-Day U.S. Treasury Bill rate. Unlike
previous years, the State portfolio did not out perform the 90-Day U.S. Treasury Bill rate in
fiscal 2005 and 2006. STO should comment on the factors that have contributed to the change
in the State’s investment portfolio performance compared to the 90-Day U.S. Treasury Bill
rate.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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E20B – State Treasurer
Exhibit 2
Comparison of State’s Investment Portfolio and 90-day U.S. Treasury Bill Rates
Fiscal 2002-2008
6%
5%
4%
Interest Rate
3%
2%
1%
0%
2002 2003 2004 2005 2006 2007 2008
Est. Est.
Avg. Rate of Return on State’s Investment Avg. 90-Day Treasury Bill Rate
Source: Governor’s Budget Books, Fiscal 2008
Claims Are Adjusted Accurately and Timely
STO is responsible for the efficient and cost-effective administration of the State Insurance
Program that includes self-insurance and procurement of commercial insurance. Exhibit 3 compares
the number of new claims received with the number of claims closed. At the end of fiscal 2005, there
were 825 open claims. The number of open claims dropped to 507 by the end of fiscal 2006, and
STO anticipates end-of-year open claims to remain at this level by closing as many cases as are
opened each year.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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E20B – State Treasurer
Exhibit 3
New Claims v. Claims Closed
Fiscal 2002-2008
5,000
4,000
3,000
2,000
1,000
0
2002 2003 2004 2005 2006 2007 2008
Est. Est.
New Claims Claims Closed
Source: Governor’s Budget Books, Fiscal 2008
Fiscal 2007 Actions
Proposed Deficiency
A proposed fiscal 2007 deficiency appropriation would increase general funds by $48,000 and
special funds by $115,000 to cover bond sale expenses. The special fund increase is due to the
increased cost of the State’s two general obligation bond sales ($80,000) mostly related to increased
rating agency fees, and due to the sale of Qualified Zone Academy Bonds (QZABs) to fund school
construction ($35,000). The QZAB sale was not anticipated when the fiscal 2007 budget was
formulated. The special funds are derived from the proceeds of the bonds. The general funds are to
cover legal services relating to the issuance of debt but which cannot be attributed to specific bond
issuances.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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E20B – State Treasurer
Governor’s Proposed Budget
As illustrated in Exhibit 4, the fiscal 2008 allowance for STO increases by $5.9 million
representing a 14.7% increase. The largest areas of increase are in insurance coverage purchased for
agencies ($4.8 million) and bond sale expenses ($963,000). If these items and one-time health
savings are adjusted for, the growth in the budget operations of STO is just under $359,000
representing a 0.9% increase over the current year.
Exhibit 4
Governor’s Proposed Budget
State Treasurer
($ in Thousands)
General Special Reimb.
How Much It Grows: Fund Fund Fund Total
2007 Working Appropriation $4,985 $812 $34,606 $40,403
2008 Governor’s Allowance 5,092 1,727 39,517 46,336
Amount Change $106 $916 $4,911 $5,933
Percent Change 2.1% 112.8% 14.2% 14.7%
Where It Goes:
Personnel Expenses
Increments and other compensation ............................................................................... $110
Retirement expenses ....................................................................................................... 70
Decreased turnover ......................................................................................................... 34
Health insurance costs decline due to one-time savings................................................. -74
Other fringe benefit adjustments .................................................................................... 8
Operations
Lease payment for check writing system and scheduled PC replacements .................... 46
Computer hardware/software maintenance increase due to expiration of new
purchase maintenance period.......................................................................................... 43
Banking services contracts ............................................................................................. 13
Data processing supplies budgeted at fiscal 2006 actual ................................................ 6
Department of Budget and Management paid telecommunications ............................... 5
Remove one-time funding for reconciliation system study ............................................ -80
Check writing and supplies (safety paper, toner, developer, etc.) decrease due to
increased use of electronic payments ............................................................................. -43
Analysis of the FY 2008 Maryland Executive Budget, 2007
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E20B – State Treasurer
Where It Goes:
Other Changes
Insurance coverage purchased for agencies.................................................................... 4,785
Bond sale expenses increase to allow issuance of variable rate debt ............................. 963
Other 47
Total $5,933
Note: Numbers may not sum to total due to rounding.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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E20B – State Treasurer
Issues
1. Unfunded Liability in the State Insurance Trust Fund Decreases
The State provides insurance protection through self-insurance from the State Insurance Trust
Fund (SITF) and through the purchase of excess commercial insurance policies. Premiums charged
to State agency budgets on an annual basis provide the source of revenue for the SITF.
In the Treasurer’s 2007 Report to the Legislative Policy Committee, STO advised that the
unfunded liability in the SITF dropped from $19.5 million in fiscal 2005 to $7.7 million in
fiscal 2006. The unfunded liability results from insufficient funds being credited to the SITF to cover
losses and increases in commercial insurance premiums.
Each year STO recommends premium levels to the Department of Budget and Management
(DBM) that would return the SITF to the full funding level recommended by the actuary. It also
provides DBM with a “minimum premium” level representing the amount projected to cover only the
anticipated claims required to be funded in the upcoming year. Although the minimum premium
level has been funded in recent years, lower than anticipated losses have decreased the unfunded
liability. Should this trend continue, the unfunded liability will be eliminated in the next few years.
To ensure that losses are kept to a minimum, STO instituted a loss prevention program that
began with the creation in the Insurance Division of a Loss Prevention Manager position. Under the
direction of this manager, insurance division staff works with State agencies to target preventable
losses. The Insurance Division developed a fire and life safety self-audit program expected to be
implemented in 2007 at State agencies experiencing large losses.
STO should comment on the current unfunded liability and the likely timeframe for its
elimination given the current level of budgeting for premiums.
2. Bond Sale Expenses Increase to Allow Issuance of Variable Rate Debt
Beginning in fiscal 2008, STO intends to issue variable rate debt if market conditions suggest
doing so will result in debt service savings. Authority to issue variable rate debt is provided by
Chapter 325 of 2003. Additional costs are incurred when variable rate debt is issued and the
fiscal 2008 allowance for the Bond Sale Expense program includes $963,000 for this effort. (For a
full discussion of the variable rate debt issuance plans see Issue No. 6 of the Department of
Legislative Services Public Debt Budget Analysis.) As yet, STO has not developed written policies
on when and how variable rate debt will be issued. Budget bill language is included in the
Recommended Actions section of this analysis to restrict funds for variable rate debt issuance
until written policies are developed.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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E20B – State Treasurer
Recommended Actions
1. Add the following section:
SECTION X. AND BE IT FURTHER ENACTED, That $38,623 in general funds, $3,595 in
special funds, and $26,661 in reimbursable funds shall be deleted from E20B01.01 Treasury
Management. This reduction may be allocated between E20B01.01 Treasury Management
and E20B02.01 Insurance Management. The Governor shall develop a schedule for
allocating this reimbursable fund reduction across the various units of State government that
receive services from the Office of the State Treasurer and across all funds based upon
agency use of those services. The reduction under this section shall equal at the least the
amounts indicated for the budgetary fund types listed:
Fund Amount
General $15,997
Special $5,332
Federal $5,332
Explanation: Increase turnover to 5% to more closely reflect historical vacancy levels. For
the past two years the vacancy rate has not dropped below 12.5%.
2. Add the following language:
Provided that no funds may be expended for the purpose of preparing for or issuing variable
rate debt until the State Treasurer’s Office develops written policies addressing the following
topics:
(1) the market conditions under which variable rate debt will be issued;
(2) limits on the per issuance and aggregate level of variable rate debt;
(3) methods that will be used to safeguard against increasing interest rates and the
conditions under which these methods would be employed;
(4) reserve requirements; and
(5) the types of variable debt rate instruments that could be utilized.
Explanation: Beginning in fiscal 2008, the State may begin issuing variable rate debt. As
yet, written policies do not exist on how and when variable rate debt would be issued. This
language restricts funds budgeted for preparing for and issuing variable rate debt until such
policies have been developed.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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E20B – State Treasurer
Appendix 1
Current and Prior Year Budgets
Current and Prior Year Budgets
State Treasurer
($ in Thousands)
General Special Federal Reimb.
Fund Fund Fund Fund Total
Fiscal 2006
Legislative
Appropriation $4,339 $785 $0 $33,710 $38,834
Deficiency
Appropriation 0 0 0 0 0
Budget
Amendments 41 44 0 0 84
Reversions and
Cancellations 0 0 0 0 0
Actual
Expenditures $4,380 $828 $0 $33,710 $38,918
Fiscal 2007
Legislative
Appropriation $4,956 $808 $0 $34,606 $40,370
Budget
Amendments 30 4 0 0 34
Working
Appropriation $4,985 $812 $0 $34,606 $40,403
Note: Numbers may not sum to total due to rounding.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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E20B – State Treasurer
Fiscal 2006
The fiscal 2006 budget for the State Treasurer’s Office closed out $84,228 higher than the
legislative appropriation. Budget amendments increased general funds by $40,658 for a general
salary increase ($23,911) and for increased employee and retiree health care insurance subsidies
($16,747) and increased special funds increased by $43,570 to cover bond sale expenses.
Fiscal 2007
The fiscal 2007 working appropriation is $33,586 higher than the legislative appropriation and
reflects increases in general funds ($30,079) and special funds ($3,913) by budget amendment for a
general salary increase offset partially by a transfer to the Department of Budget and Management of
$406 in general funds to help fund the comprehensive salary study.
Analysis of the FY 2008 Maryland Executive Budget, 2007
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Object/Fund Difference Report
State Treasurer
FY07
FY06 Working FY08 FY07-FY08 Percent
Object/Fund Actual Appropriation Allowance Amount Change Change
Positions
01 Regular 55.00 59.00 59.00 0 0%
Analysis of the FY 2008 Maryland Executive Budget, 2007
02 Contractual 1.00 0 0 0 0.0%
Total Positions 56.00 59.00 59.00 0 0%
Objects
E20B – State Treasurer
01 Salaries and Wages $ 3,789,118 $ 4,476,940 $ 4,625,107 $ 148,167 3.3%
02 Technical and Spec. Fees 36,588 4,000 4,000 0 0%
03 Communication 91,745 88,229 92,687 4,458 5.1%
04 Travel 31,986 33,000 33,500 500 1.5%
06 Fuel and Utilities 222 0 0 0 0.0%
07 Motor Vehicles 6,032 12,310 10,769 -1,541 -12.5%
13
08 Contractual Services 3,774,627 3,670,630 4,665,045 994,415 27.1%
09 Supplies and Materials 228,295 182,886 147,577 -35,309 -19.3%
10 Equipment – Replacement 3,432 97,600 143,660 46,060 47.2%
11 Equipment – Additional 18,675 4,410 3,415 -995 -22.6%
13 Fixed Charges 30,937,595 31,833,083 36,609,895 4,776,812 15.0%
Total Objects $ 38,918,315 $ 40,403,088 $ 46,335,655 $ 5,932,567 14.7%
Funds
01 General Fund $ 4,380,087 $ 4,985,419 $ 5,091,530 $ 106,111 2.1%
03 Special Fund 828,094 811,591 1,727,199 915,608 112.8%
09 Reimbursable Fund 33,710,134 34,606,078 39,516,926 4,910,848 14.2%
Total Funds $ 38,918,315 $ 40,403,088 $ 46,335,655 $ 5,932,567 14.7%
Appendix 2
Note: The fiscal 2007 appropriation does not include deficiencies, and the fiscal 2008 allowance does not reflect contingent reductions.
Fiscal Summary
State Treasurer
FY06 FY07 FY08 FY07-FY08
Program/Unit Actual Wrk Approp Allowance Change % Change
01 Treasury Management $ 5,526,292 $ 6,160,951 $ 6,250,690 $ 89,739 1.5%
01 Insurance Management 2,118,793 2,122,697 2,217,492 94,795 4.5%
02 Insurance Coverage 30,907,660 31,797,440 36,582,473 4,785,033 15.0%
Analysis of the FY 2008 Maryland Executive Budget, 2007
01 Bond Sale Expenses 365,570 322,000 1,285,000 963,000 299.1%
Total Expenditures $ 38,918,315 $ 40,403,088 $ 46,335,655 $ 5,932,567 14.7%
General Fund $ 4,380,087 $ 4,985,419 $ 5,091,530 $ 106,111 2.1%
E20B – State Treasurer
Special Fund 828,094 811,591 1,727,199 915,608 112.8%
Total Appropriations $ 5,208,181 $ 5,797,010 $ 6,818,729 $ 1,021,719 17.6%
Reimbursable Fund $ 33,710,134 $ 34,606,078 $ 39,516,926 $ 4,910,848 14.2%
14
Total Funds $ 38,918,315 $ 40,403,088 $ 46,335,655 $ 5,932,567 14.7%
Note: The fiscal 2007 appropriation does not include deficiencies, and the fiscal 2008 allowance does not reflect contingent reductions.
Appendix 3