Special committee examines centralized pooled collateral, recommends bills to reform deposit collateral and linked‑deposit programs

A special interim committee on centralized pooled collateral and modernization of the Pooled Money Investment Board (PMIB) reviewed last session’s proposals and an economic impact study and recommended two bills to revise how public deposits are collateralized and to update the state’s linked‑deposit loan programs.

The report, presented by Eddie Penner of the Legislative Research Department, summarized the genesis of the study: House Bill 2840 (filed in the prior session) would have created a single centralized pooled collateral system to collateralize public deposits held by financial institutions. That bill did not advance, and the special committee was directed to evaluate centralized pooling, administrative law changes related to public‑fund deposits, and revisions to the state’s linked‑deposit programs.

Why it matters: under current Kansas law, deposits above FDIC insurance limits are collateralized on a deposit‑by‑deposit basis, which can produce administrative complexity and substantial over‑collateralization. A centralized pool would allow a bank to hold a single collateral pool for all public deposits, reducing duplication and potentially lowering over‑collateralization costs.

The committee heard an economic impact study from a Fort Hays State University professor that concluded investing public funds in local financial institutions generally produces more local economic development and tax revenue than placing those funds out‑of‑state, even when out‑of‑state rates are somewhat higher. The study estimated a break‑even interest differential of about 3.15 percentage points: if an out‑of‑state institution offered returns more than ~3.15 percentage points above local returns, the overall system calculation might favor the out‑of‑state placement. The report noted assumptions underpinning the calculation and that small assumption changes alter the result.

Committee members also heard from representatives of the Kansas Bankers Association, the Community Bankers Association and in‑state banks that accept public deposits, as well as a Nebraska official describing that state’s centralized pooled collateral program (in effect since 2020). The Nebraska representative said their program had no administrative problems once implemented and that a bankers’ association or similar operator can administer the pool though other operators are possible.

Based on these inputs, the committee produced eight recommendations grouped into three areas: (1) create a centralized collateral pooling program (included in proposed legislation and reflected in HB 2152); (2) adopt a suite of administrative statutory changes to public‑deposit law (also included in HB 2152); and (3) overhaul the state’s linked‑deposit loan programs to remove outdated restrictions and improve competitiveness and usefulness.

The PMIB and State Treasurer staff also briefed the committee on policy priorities for public funds: security, then liquidity, then return. The committee noted the state’s linked‑deposit programs are not widely used, though one emergency program for utility payments after the February 2021 winter storm (Winter Storm Uri) had been heavily used when active and still contains active loans.

Penner told the committee that one of the bills reflecting the recommendations had been introduced (HB 2152) and a second was expected soon. The committee recommended the House Committee on Financial Institutions and Pensions carry the bills forward for formal introduction and work.

The committee did not adopt a single implementation operator model; documents reviewed included examples from Nebraska and testimony from Kansas banking groups. The report and economic study are available with the interim committee materials for further review by legislators.