Bankers' bill would create state collateral pool; county staff say required local-deposit rule could cost Sedgwick County about $3 million

County finance staff told commissioners about a proposal from the Kansas Bankers Association and the Community Bankers Association intended to increase public deposits in local banks by creating a state-managed collateral pool and by altering procurement preferences for public deposits.

Brent, a county finance official, summarized the bill's two main components: the creation of a collateral pool managed by the state treasurer so banks would not have to post separate collateral for public deposits, and a change that would require offering deposits to local banks first and permit a deposit to go to a local bank even if its rate is up to two basis points below the market rate. "It could cost us up to $3,000,000 a year based on the current size of our portfolio," Brent said when explaining the potential fiscal impact.

Staff also noted a conflict with federal IRS rules for investing bond proceeds: investments of debt proceeds must meet IRS market-rate requirements, and the bill's preferred-rate language could clash with those rules. The House committee directed stakeholders — including the Kansas Association of Counties, the League of Municipalities and the bankers' associations — to negotiate a compromise and bring it back; county staff said Jay Hall with the Kansas Association of Counties had asked Sedgwick County to take the lead on negotiations for counties.

Staff said the House committee scheduled a hearing on the bill for Feb. 26 and that county negotiators will try to limit any taxpayer subsidy of local banks while preserving opportunities for smaller banks to bid on public deposits. Commissioners said the proposed interest concession would amount to a taxpayer subsidy and noted concern about the fiscal impact.