Lawmakers hear briefing on linked deposit loan programs; experts urge modernization and outreach

Lawmakers on the Committee on Financial Institutions and Pensions heard an informational briefing March 6 on Kansas’ linked deposit loan programs and heard recommendations from bankers, the Missouri treasurer’s office and state treasury staff to modernize and better promote the programs.

Why it matters: Linked deposit programs use state idle funds invested by the treasury to provide below-market financing for eligible borrowers (for example, small businesses, farmers, multifamily housing and local government projects). Witnesses told the committee that Kansas’ programs have been underused and recommended structural changes and additional outreach to drive higher utilization and measurable local economic benefits.

Alex Orell, senior vice president for government relations at the Kansas Bankers Association, urged modernization and said the current Kansas programs are fragmented and operate in silos. He noted the authorization level for Kansas linked deposit programs is just under $200 million and said loan limits and short terms have limited take-up. Orell said several Kansas programs have low loan limits (for example, $250,000 in the Ag Production and economic recovery programs) and short allowable note terms (the housing program permits 5-year notes, which Orell said is not competitive with typical housing financing timelines). He suggested a single umbrella structure—similar to Missouri’s “MoBucks”—that would allow flexible allocations across program categories and proposed caps tied to the size of the Pooled Money Investment Board (PMIB) pool, such as an initial cap of roughly 5% of the portfolio (roughly $450 million at times) and a secondary cap limiting housing to a share of that total.

David Salser, director of investments for the Missouri State Treasurer’s Office, described Missouri’s MoBucks linked-deposit program. He said Missouri’s legislature recently raised MoBucks’ cap from $800 million to $1.2 billion, and that Missouri operates an umbrella program covering small business, agriculture, multifamily, government entities, job enhancement and renewable energy. Salser explained the program mechanics: the treasurer’s office makes a below-market deposit at participating banks (a collateralized certificate of deposit) in exchange for the bank extending below-market-rate loans to eligible borrowers. He said the state performs due diligence on deposits and has processes to ensure collateralization; from Missouri’s perspective, the structure limits the treasurer’s credit exposure because the program’s funds are held in collateralized CDs.

Shawna Wake (state treasury staff) provided a Kansas treasury overview and described how Kansas funds are pooled and invested by the PMIB. She confirmed Kansas Treasury and PMIB staff do not perform borrower credit reviews—the lending institution is responsible for that review—and said Kansas requires an initial certification, annual renewal (for 5-year commitments) and a biannual borrower certification. Wake said unused funds authorized for linked deposits are not idle but placed into other investments in the state portfolio. She also described statutory constraints and noted that some legislative-mandated investments may affect how much of the portfolio can be allocated to linked deposits.

Committee members pressed witnesses on oversight, audits and eligibility. Representative Williams asked whether the treasurer’s office conducts ongoing audits or checks after deposit approval; Missouri’s Salser said the office performs annual renewals and ongoing due diligence on deposits and collateralization, and Wake said Kansas conducts an annual renewal and a biannual borrower certification and would pull a deposit if certification failed. Representative Robsir asked whether citizenship is required; Salser said citizenship is not required but legal residency is.

Several members and stakeholders emphasized outreach and application assistance as key to increasing program use. Representative Neely and others said program complexity discourages applicants; witnesses and trade groups, including the Kansas Bankers Association and the Kansas Association of Realtors, said education and training for lenders and potential borrowers will be essential. Alex Orell and the KBA committed to provide training to bankers and, where appropriate, outreach to bank customers, citing the association’s history of delivering training during the Paycheck Protection Program rollout.

Mark Jim, vice president of governmental affairs for the Kansas Association of Realtors, supported using linked deposits in housing, describing the “math problem” for housing development and suggesting program changes that could pair with local tools such as Reinvestment Housing Incentive Districts (RHID) to create payback streams for a revolving fund.

Next steps recorded in the meeting: committee members discussed requesting an interim committee to study modernization, outreach and detailed program design; the chair said he intends to request an interim committee to take a deeper dive and refine details for potential legislation next year.

No formal committee action on linked deposit program design was taken; the session was informational.