Legislative budget panel hears reports on surging investment earnings, Cash Management Board plans

State budget and investment officials told the Legislative Budget Committee on Sept. 29 that higher interest rates produced sharp increases in investment income across multiple state portfolios and that the state will soon consider coordinated cash-management decisions.

Joe Morrissette of the Office of Management and Budget said the 2023-25 biennium’s investment forecasts missed in both assumed interest rates and account balances. “We were way off on both marks in the 23-25 biennium,” Morrissette said, explaining that unexpected higher balances and higher market rates produced a positive variance but created uncertainty about transfers from the Budget Stabilization Fund. Morrissette outlined the OMB forecast for 2025-27, noting it assumes 2.5% early in the biennium and 2% later, and cautioned that the budget stabilization transfer remains contingent on meeting statutory caps.

North Dakota State Treasurer Thomas Beedle described how the Treasurer’s office invests state operating dollars primarily through the Bank of North Dakota and allocates interest monthly to funds that retain earnings. “Over 99% of the funds that we manage in our office are invested through the Bank of North Dakota,” Beedle said, and he pointed to large increases in CD yields and commingled returns as drivers of higher biennial earnings.

Scott Anderson, chief investment officer for the Retirement Investment Office, reported strong returns across state portfolios and highlighted the Legacy Fund’s performance: a roughly 25% return over the two-year period used in the committee materials. Anderson added that the recent change in law (Legacy Fund distribution moved from 7% to 8% of a five-year average) increases the dollar amount distributed on odd-numbered years.

Don Morgan, president and CEO of the Bank of North Dakota, described how the bank sets deposit pricing (surveying the largest community banks weekly and averaging rates) and previewed the first Cash Management Board meeting scheduled for Sept. 29. Morgan framed a ‘whole-of-state’ total-return view—saying the state both pays interest on deposits and receives net income/dividends as the bank’s owner—and noted the policy choices involved in splitting that total return between deposit rates and dividends.

Committee members pressed for detail on governance; Morgan listed the governor as chair of the Cash Management Board and said the State Treasurer and several legislative and bank officials will participate. The committee agreed to continue tracking cash-management work and the investment forecasts as part of regular reporting.

The committee did not take formal action on investment policy at the meeting; presenters said follow-up work and the Cash Management Board discussion will be the venues for allocation decisions.