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County officials say bankers’ bill could cost Sedgwick County about $3 million a year
Summary
County finance staff briefed commissioners on a bankers’ proposal that would create a state collateral pool for public deposits and require preference for local banks, a change staff estimated could reduce county investment returns by about $3 million a year.
County finance staff on Feb. 7 briefed commissioners on a proposal carried by the Kansas Bankers Association and Community Bankers Association that aims to increase public deposits held by local banks.
Brent (county finance staff) summarized two core components: creation of a state-managed collateral pool to cover public-deposit balances above $250,000 so banks would not need to post individual collateral, and a preference requirement that would require counties to offer deposits to local banks first and accept deposits from them if they bid within two basis points of market rate.
County staff said the collateral pool could expand opportunities for smaller, local banks to compete for public deposits. However, staff said the preference provision could cost the county up to about $3,000,000 a year based on the current portfolio size because the county may have to accept slightly lower interest rates to place funds locally. Finance staff also noted a conflict with federal IRS rules for investing bond or debt proceeds, where market rates are mandated.
The House committee requested KAC, the League of Municipalities, bankers and other stakeholders to negotiate a compromise, and staff said Kansas Association of Counties asked Sedgwick County to take a lead role in talks. A committee hearing was scheduled for Feb. 26, and staff said they will continue negotiations ahead of that date.
Ending: County staff described the proposal as having potential local economic benefits but warned commissioners of the estimated fiscal impact and ongoing negotiations to reconcile the bill with federal rules on debt investment.
