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Wednesday, November 17, 2010

State Investment Portfolio Performing Horribly In Ohio: 85% Below Estimate In Latest Monthly Report

Investment Earnings Way Off Estimates
CINCINNATI (TDB) -- On any given day, the State of Ohio's general fund has about $5.6 billion stashed away in various investments, including certificates of deposit and various funds that are supposed to produce revenue.  It's like a piggybank run by experts.  The earnings generated from the investments are budgeted and pay to run the state government; they go to schools and colleges, to pay state troopers and prison guards, to the people who build roads and drive salt trucks.  But the earnings estimates are wildly incorrect as the state fiscal year begins -- last month they were off the mark by 84.7%.  Incompetence or an unreliable investment market?  Nobody is talking yet about the busted numbers.  In October, the state made $3.142 million -- it expected to earn $20.5 million.  It was a $17.4 million shortfall.  That might be the biggest miss in recent history, a whiff of epic proportions.  The monthly financial report issued last week by Ohio's Office of Budget and Management generally had good news about state finances. It said October was a month of "slow, but positive economic progress."

But the investment earnings report was decidedly dismal.  It is not clear who prepared the projections that are based upon the performance of the state treasurer's office.  Democrat Kevin Boyce -- the current treasurer -- was defeated Nov. 5 and leaves office in January.  Republican Josh Mandel takes over.  Mandel has his work cut out.  He has to prove that he can do any better investing state funds, and he has to prove he can forecast earnings accurately.  Tall orders.  The investment earnings aren't the biggest revenue producer for the state -- but they are supposed to bring in more than liquor sales ($7.8 million) and utility taxes ($16.3 million).  How bad are the investment earnings?  In October 2009, the state made $11.54 million.  That was 72% ($8.4 million) better than last month.

Comparative data for investment earnings from other states is hard to track down -- not everybody is as transparent as Ohio, nor do they keep records in the same fashion.  Neighboring Indiana reports interest income and it earned $200,000 --down 78.8% from a year earlier.  Its state budget agency report did not show any estimates for Indiana (or at least The Daily Bellwether could not locate them).  In Ohio, there are certainly questions to ask about the investment earnings estimates and how they were derived, where they came from, who made the overly sunny forecast?  Did somebody get paid, an outside consultant, to predict that Ohio would earn $20,500,000 on its investments?  Maybe the state needs to get a refund . . .

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