Mr. Chairman, I want to thank you and the Committee for giving me this opportunity to discuss the proposed appropriation for the Treasury Department for fiscal year 2006-07. Our budget request is based on proposed expenditures that are prudent and necessary for the Department to fulfill its mission to protect taxpayers’ hard-earned money before it is spent and to ensure that state investments achieve competitive market returns and meet the highest fiduciary standards.
As you know, the Treasury Department is responsible for investing about $12 billion annually, $4 billion of which is working capital that is invested daily and used to pay the Commonwealth’s bills. We also manage the many banking relationships used to deposit state funds, clear state checks, and hold approximately $100 billion in securities owned by the Commonwealth and the state pension funds.
Savings
In my first year in office, I have made a comprehensive effort to implement best practices across all of these functions while lowering costs and increasing accountability. Our actions have saved taxpayers nearly $10 million in fees, leading to higher investment earnings and a more efficient and effective Treasury Department.
For example, to improve services and save nearly $1.5 million a year in bank custody fees, I consolidated the Treasury Department’s business into one custody bank. This consolidation with Mellon Bank also eliminated the “middleman” in a contract to provide highly specialized accounting services to Treasury that will cut costs by $500,000 a year and increase revenues by $260,000.
Our Department also saved taxpayers nearly $3 million by reducing the fees associated with the buying and selling of $2.8 billion in equity securities. We leveraged our buying power and lowered the price-per-share trading fee to less than one cent. This is a significant savings, considering that institutional customers normally pay between four and six cents per trade.
Taxpayers will save another $4 million annually because we stopped outsourcing the management of the Commonwealth’s $4 billion in working capital. We hired a new Director of Trading who has worked with existing Treasury staff to bring cash management activities back in-house at a fraction of the cost and with increased yields on the investment.
These changes have also enabled us to reduce consultant fees by almost half a million dollars a year.
We are proud of these cost-saving measures and the fact that our investments meet the highest fiduciary standards.
But we are also proud of the job we do every day fulfilling our most basic responsibility – paying the Commonwealth’s bills. In the past year, the Treasury Department processed nearly 22 million payments totaling over $57 billion.
Prompt and Accurate State Payments
Ensuring that these payments are prompt and accurate is something we take very seriously. For example, despite a weeklong delay in the transmission of data from federal to state agencies as a result of Hurricane Katrina, Treasury staff worked around the clock to ensure that nearly 273,000 SSI State Supplementary Payments were made on time. We were able to cut in half the time it normally takes to process the information from the federal government and to make these important disbursements without delay.
Treasury has also taken on a new responsibility in the SSI payment process that will save taxpayers an estimated $25 million a year.
To help Pennsylvanians protect themselves from identity theft and safeguard their personal finances, we worked with the Department of Labor and Industry to remove Social Security numbers from the nearly 7 million Unemployment Compensation benefit checks that Treasury disburses each year. I have also removed Social Security numbers from Treasury earnings statements, payroll reports and savings bond reports.
New Initiatives to Help People
While meeting our basic responsibilities, we have also used the authority of the Treasury Department to help people – in a manner consistent with previous Treasury initiatives, but with a new focus.
As you know, the ability of health care providers to access affordable financing alternatives is directly related to the quality of health care available to our families and vitally important to the economic health of our Commonwealth.
Hospital Enhancement Loan Program
That is why I have created the first-ever Hospital Enhancement Loan Program or H·E·L·P. This new loan program will enable licensed acute care hospitals to secure lower-cost financing for critical facility and technology upgrades and to provide patients with higher-quality care.
H·E·L·P’s unique composite bond offering will combine several hospitals’ projects into one simultaneous bond issuance. This will allow upfront costs to be shared, so hospitals will pay less in transaction costs than if they issued bonds on their own. The reduced costs will enable hospitals to spend more on health care and less on loan fees.
In addition to lower transactional costs for participants in the composite bond offerings, certain hospitals that advance one or more of H·E·L·P’s criteria will benefit from additional savings in the form of lower bank fees. These criteria include improving patient safety, strengthening the delivery of patient care through the purchase of necessary new equipment or technology, and renovating hospital facilities.
KeystoneHELP
In addition to helping hospitals secure low-cost financing, we are helping Pennsylvania families deal with skyrocketing fuel costs. Earlier this year, I launched a new statewide initiative to promote energy conservation and reduce home heating bills. Our $20 million Keystone Home Energy Loan Program is helping homeowners across Pennsylvania to borrow money at low interest rates to purchase energy-efficient appliances and to make other ENERGY STAR improvements to their homes.
TAP Improvements
To give families saving for college through the Tuition Account Program greater peace of mind, I took the unprecedented step of hiring Moody’s Investors Service – one of the world’s most respected sources for credit ratings, research and risk analysis – to conduct a comprehensive review of TAP’s Guaranteed Savings Plan option.
In its first-ever rating of any state’s 529 college savings plan, Moody’s assigned the GSP an investment grade rating of A3, which you know is considered “upper medium grade” and “subject to low credit risk.”
Moody’s rating recognizes the strong support that you in the General Assembly have always shown for TAP. It also presents us with a tremendous opportunity to encourage many new families to enroll in the GSP.
Since the GSP began making payouts in 1997, the Treasury Department has made more than 61,000 payments for over 15,800 college students.
This is great news, but we must continue to grow the Guaranteed Savings Plan in order to keep it strong for families in the future.
To that end, we are currently reviewing proposals to substantially redesign and improve the entire TAP Program. When a new contractor is in place, we will be able to offer families a simpler program, a broader range of investment products, and the ability to open and manage TAP accounts on-line.
In the short term, we are conducting a comprehensive marketing campaign to promote TAP. Working with The Neiman Group and The Gallup Organization, we are analyzing the college savings needs of Pennsylvania families, as well as the strategies that will convince families that TAP is a solid, tax-advantaged way to meet those needs.
Over the past few weeks, you may have heard one of the two radio ads we are running to promote the GSP. One focuses on our annual $15,000 Pot of Gold scholarship contest. The other ad uses a classroom scene with a college professor and young children to drive home the point that your kids may not be ready for college yet, but there’s something you can do right now to beat tuition inflation.
In order to build on the momentum of these ads, as well as the Moody’s rating and the re-launch of the TAP program, I am respectfully asking the General Assembly to appropriate $2 million in the 2006-07 fiscal year for TAP marketing.
There are four compelling reasons to support this increased appropriation:
- The TAP GSP helps families beat tuition inflation – making it a powerful college savings tool at a time of skyrocketing tuition increases.
- Aggressively publicizing Moody’s A-rating of the TAP GSP will help restore confidence in the GSP, encourage greater participation in it, and improve the fund’s overall fiscal soundness.
- Cutbacks in federal support of financial aid, including higher interest rates for Stafford and PLUS loans, make saving for college now imperative.
- We need to effectively and aggressively re-launch and re-brand the TAP program, as well as educate Pennsylvania families about the exciting new college savings options available to them.
New Office of Investigations
As I did for eight years in the Auditor General’s office, I have also placed a priority on our audit and investigative responsibilities in the Treasury Department. That is why I created a new Office of Investigations to address complaints of suspected forgery, counterfeiting of Commonwealth checks and alleged fraud.
During the past year, we opened 156 investigations and referred 10 percent of them to prosecutors and law enforcement for further investigation.
I have also expanded the Treasury Department’s pre-audit function through the creation of a special unit that conducts in-depth assessments of fiscal controls and contractual compliance well in advance of when requisitions are sent to us for payment. This new unit works closely with our Bureau of Fiscal Review, which last year pre-audited over 460,000 payment requests and identified some $87 million in savings.
Together, we are better protecting the public’s money and stopping wasteful or unlawful spending before it occurs. Taxpayers benefit from this aggressive approach because less money is wasted, and the money that is saved is invested by the Treasury Department, thereby creating additional investment earnings.
Unclaimed Property Achievements
As you know, the Commonwealth is responsible for custody and control of abandoned and unclaimed financial assets and the State Treasurer is responsible for returning that property to its rightful owners.
I want to thank you and other members of the General Assembly for your efforts to help us fulfill this responsibility. Our Department is proud to work closely with your staffs to provide prompt and effective service to thousands of constituents each year.
In the last year alone, Treasury returned $100 million to more than 105,000 owners of unclaimed property. That’s a 280% increase over 2004. A net of $99 million was deposited into the General Fund.
To expedite unclaimed property claims as quickly and as efficiently as possible, we have implemented numerous operational enhancements, including Saturday overtime to reduce a claims backlog, and adjusted weekday office hours to better accommodate the public.
In addition, we discontinued an outsourcing arrangement with an out-of-state company that was providing call center and claims processing services for our Bureau of Unclaimed Property. If this contract had been extended for the coming fiscal year, it would have cost taxpayers nearly $1.3 million. Instead, these jobs and all of the claims processing are back in Pennsylvania.
Death Benefits Legislation
Before I close, I want to take this opportunity to thank you for providing Treasury with the supplemental appropriation we needed this year to pay death benefits to the families of law enforcement, public safety, and National Guard workers who died in the line of duty. Within weeks of making you aware of that our 2005-06 appropriation was insufficient to fund an expansion of the law, you took action to ensure that we could meet our financial obligation to these families and that they could promptly receive the funds to which they were entitled.
I would be happy to discuss in greater detail how our efforts to cut costs and improve service will continue to benefit the taxpayers of Pennsylvania and the General Fund for years to come.
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