Banking study offers lesson in election year politics

JEFFERSON CITY, Mo. -- Money, politics and policy tend to intertwine in an election year.

A study released last week on the otherwise obscure topic of state investment practices highlights that point.

The Missouri Bankers Association released a report by a noted University of Missouri-Columbia economics professor examining the benefits of investing state money in Missouri banks versus in out-of-state financial options.

The background: As recently as 1990, the state treasurer placed 66 percent of Missouri's investments in Missouri banks. But by 2002, bank deposits had plummeted to 13 percent.

In his study, economist Joseph Haslag noted that out-of-state investments, such as U.S. Treasury securities or commercial paper, have become more common because they offer higher interest rates and quicker access to the money.

Yet Haslag said Missouri's economy could gain in the long run if the state put more money in Missouri banks, which presumably would lend that money to other businesses, which by expanding or buying better equipment would increase productivity, resulting in higher incomes for workers. The chain reaction could result in slightly greater state tax revenue, Haslag said.

But to make state deposits more attractive to banks, Missouri probably would have to relax some of its investment laws and policies.

Deciding where to invest

Haslag said the extra state tax revenue from additional Missouri bank deposits "looks like a wash" when compared with the higher interest rates of out-of-state investments.

He expressed no opinion on whether it was better economically for Missouri to invest its money in home-state banks or in other financial options.

"That's a matter of public policy," Haslag said. "All I tried to do is add an awareness of what the trade-offs are."

Others were quite willing to use Haslag's study to score political points.

The Missouri Bankers Association, which combined with another industry group to commission the study for about $20,000, used it as leverage in lobbying the leading treasurer's candidates, Republican Sen. Sarah Steelman, of Rolla, and Democrat Mark Powell, the mayor of Arnold.

The Missouri Bankers Association, which has sparred with Farmer over the treasurer's investment practices, initiated the study 1 1/2 years ago. Assuming Farmer would seek re-election, the group planned to use the report to persuade her to invest more money in banks -- or, if she refused, as evidence against her, said Bill Ratliff, the association's executive vice president.

But Farmer surprised the bankers by instead running for Senate. Suddenly, there were 10 Democrats and Republicans in a wide open treasurer's race. So the group decided to delay releasing the report until after the Aug. 3 primary, when it could better target the two winners, which turned out to be Steelman and Powell, Ratliff said.

"They're pretty interested in it," Ratliff said. "So we feel pretty good about the direction the treasurer's office may go in, no matter who gets in."

Money well spent

If that's the case, the study may have been money well spent for the bankers.

But Farmer's deputy treasurer, Chuck Miller, dismisses it as a personal shot at Farmer.

"Obviously, you have to take this study with a grain of salt, considering who's behind it and what they're trying to do," said Miller, referring to the bankers group while rattling off reasons why the current investment practices make financial sense. "Yeah, it's political. And yeah, they did this to poke Nancy Farmer."

Haslag, who actually did the work, said he had no such intentions.

Haslag helps develop the state's revenue estimate. And he is the executive director of the university's Economic Policy Analysis and Research Center. He said the banker's study was the first time he had done any research on the side. And Haslag said he was unaware how it would later be used politically.

"They asked a question. As an economist and hopefully as a well-trained expert, I applied my expertise to answer a question. They did not try to lead me to an answer," Haslag said. "There is really no answer."

Of course, that's not how the bankers and politicians are portraying it.