Bills would invest state money in small businesses

JEFFERSON CITY, Mo. -- Legislation that would allow the state treasurer to deposit more money in Missouri banks for the purpose of providing low-interest loans to small businesses and farmers is making speedy progress in the Missouri Legislature.

House Speaker Rod Jetton, R-Marble Hill, said the effort would bring more taxpayer money back to Missouri from out-of-state investments and help stimulate the state's economy.

"It's going to create jobs, produce wealth and probably turn that money over three or four or five times and put it to good use," said Jetton, a co-sponsor of the bill.

By a vote of 154-0, the House of Representatives gave final approval to its version of the bill on Tuesday. The Senate unanimously approved a similar measure last month. Differences between the chambers must be reconciled before a bill can be sent to Gov. Matt Blunt.

The bills aim to revive the state's linked deposit program, which was highly successful in the 1980s but fell into disuse in the mid-1990s due to a steep decline in the market rate of interest.

Because the Missouri Constitution prohibits the state treasurer from lending taxpayer money, linked deposits are a way for a treasurer to invest funds to provide a direct economic benefit to Missourians.

Those who qualify for the program, such as people launching a small business, can fill out a loan application with their local bank. If the bank agrees to underwrite the loan, it asks the state treasurer to deposit the requested amount in its institution at an interest rate lower than market rate. The bank then loans the money to the applicant at the bargain rate.

The bank assumes all financial risk for the transaction and must repay the state if the borrower defaults.

Economic activity

State Treasurer Sarah Steelman said any opportunity costs the state would incur by removing money from higher-yield investments would be more than offset by the additional economic activity generated within Missouri.

"The basic thing is we are trying to put taxpayer dollars to work in Missouri to stimulate the economy," Steelman said.

Because of the way the law is currently written, linked-deposit loans ceased being good investment options for the state when interest rates fell so low that it would have actually cost the state money to participate. The pending bills would restructure the system to alleviate those concerns and make it more attractive for Missouri financial institutions to issue the loans.

Current law also caps the treasurer's linked-deposit investments at $360 million. The proposed legislation would double that amount to $720 million.

There are currently $39 million in such loans outstanding. Most of those loans were made in the early 1990s or before.

Steelman said that if the full allowed amount were deposited in the program it would generate an estimated $46 million in additional revenue for the state. Steelman said the linked-deposit investments would likely be phased in over several years based on loan demand.

Gary Marshall, the chief executive officer of the Missouri Corn Growers Association, said the changes will make more capital available for ethanol plants and other agribusiness facilities.

"It sounds like it is going to make the program a lot more user friendly," Marshall said. "We have not been able to access it in the past for these types of projects."

Other organizations supporting the legislation include the Missouri Bankers Association and the Missouri Credit Union Association.

The bills are HB 468 and SB 270.

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