Gov. Laura Kelly on Friday signed a bill that’s intended to create a better climate for keeping hundreds millions of dollars invested in Kansas banks.
The legislation adopts a new strategy to encourage local governments to deposit their funds in banks based in Kansas.
The bill is intended to ensure taxpayer dollars are invested in local communities, increase economic activity in the state, and provide Kansans access to additional capital to finance investments in their home, business, or community.
“This pro-economic growth legislation prioritizes the investment of local tax dollars with banks that directly serve Kansas communities and incentivizes bringing over $1 billion in tax dollars back to the Sunflower State for the benefit all Kansans,” the Kansas Bankers Association said in a statement.
The bill will now require government agencies – whether it’s a city, a county or school district, among others – to show proof of getting bids from local banks before investing their money in the state’s Pooled Money Investment Board.
The new law also imposes a bidding timeline that gives banks two business days to respond to a bid for public deposits.
The bill also creates a complaint process in which the state treasurer’s office will investigate any claims and if there is a violation, which would be reported to the attorney general.
The first violation requires additional educational training. Every violation after will receive a fine of up to $500.
The banks say the old law was structured in a way that local and state governments were less inclined to invest their funds locally than they are with institutions from out of state, which they say reduces the amount of capital for Kansas businesses that want to expand.
With local and state government investments going out of state, the banks say there are fewer funds available for home and car loans, local infrastructure and an overall diminished level of economic activity.
They pointed to how public funds are currently being invested in Kansas by the state’s Pooled Money Investment Board, which manages about $9 billion in state idle funds and local public funds held within a state-managed municipal investment pool.
However, they say only about 0.5% of those funds – about $45 million – are currently invested in Kansas bank certificates of deposit.
The vast majority is allocated to out-of-state investments such as agency discount notes, U.S. Treasury bills and commercial paper. Late last year, more than 12% had been invested in U.S. domiciled Canadian banks alone, although that has declined to about 6.6%.
The banks told lawmakers last year that the amount of local government money being invested with the Pooled Money Investment Board totaled more than $1 billion with 21% of counties, 13% of school districts and 9% of cities putting their money with the state.
The say the growth of that fund and investment decisions made by the Pooled Money Investment Board demonstrate that state laws intended to keep local and state government investments within Kansas are flawed and need improvement.
Among other things, the bill would allow the Pooled Money Investment Board to lower the statutory certificate of deposit rate up to two percentage points below market.
Banks said cutting the rate would make it more viable for Kansas banks to accept deposits, potentially increasing the percentage of PMIB funds invested in Kansas banks.
Emily Briet, who teaches banking and finance at Fort Hays State, told a panel of legislators last year that the primary advantage of placing deposits in Kansas financial institutions is that the money is more likely to be lent to Kansas borrowers.
Briet said the money lent to Kansas borrowers would boost the state’s capital stock, economic activity and income.
“The overall economic impact or impact on state government revenues will rise when the deposits are kept in Kansas financial institutions,” Briet told an interim committee.
“In other words, the gain in economic activity from tax revenues would more than offset the loss of interest income to the state of Kansas,” she said.
Briet compared the deposits to “raw materials” that allow the finance institutions to issue more loans. Any decrease in deposits, she said, hampers banks’ ability to loan money.
She said there is a multiplier effect where a portion of the deposited money is lent out and redeposited into the banking system, creating a cycle of deposits and loans that increases the overall money supply in the economy.
She estimated that revenues for state and local governments should increase if at least 9.52% of local government deposits in Kansas financial institutions are loaned out to support in-state activities.
Briet said that the larger the disparity between interest paid by out-of-state investments and interest paid on investments placed with Kansas banks leads to a decline in economic activity for state and local government revenues.
When the interest rate gap is small, the change in state and local government revenues is much larger. But as the gap between the two interest rates widens, the economic development benefits to the state decline.
“As Kansas financial institutions accept more deposits, more capital is accumulated within the state, leading to higher income and greater tax revenues,” she said.
“When Kansas banks retain a larger portion of local government funds, the state’s capital stock grows more rapidly, resulting in larger income gains, and consequently increases in state and local government revenues,” she said.
Assuming there is a demand for loans in Kansas that matches the ability of Kansas banks to supply loans, a new deposit of $10 million – while holding back $2 million – would provide $8 million available to be lent out, she said.
As the money rolls over, she said that would result in total deposits of $16 million.
Factoring in another 20% holdback, the initial investment would produce $12.8
million more in available loans made in Kansas.
In other bills signed Friday:
Senate Bill 67: The bill authorizes certified registered nurse anesthetists to prescribe, procure, and administer drugs consistent with the registered nurse anesthetist’s education and qualifications. The bill passed 118-5 in the House and 36-4 in the Senate.
Senate Bill 97: Clarifies that vehicle dealers must apply for a dealer inventory-only title for certain used nonhighway vehicles. The bill passed unanimously in the Senate and 116-7 in the House.
Senate Bill 89: The bill allows the Kansas Department of Agriculture to assess a participant fee for poultry producers who wish to voluntarily participate in the National Poultry Improvement Plan, a state-federal cooperative testing and certification program that seeks to eradicate disease in the poultry industry. The bill passed unanimously in the House and 38-2 in the Senate.
House Bill 2359: The bill simplifies interstate recognition of guardianship orders and increases opportunities for individuals subject to guardianship or conservatorship to be involved in decision-making. The bill passed unanimously in the Senate and 89-34 in the House.
House Bill 2338: The bill authorizes the board of cosmetology to issue temporary permits for guest artists. The bill passed the 38-2 in the Senate and 121-2 in the House.
House Bill 2307: The bill transfers the prenatal and postnatal diagnosed conditions awareness programs from the Department of Health and Environment to the Kansas Council on Developmental Disabilities. The bill passed unanimously in both chambers.
The governor has now signed 36 bills and vetoed 10, including two that have been overridden. She’s allowed five to become law without her signature.
There are 71 bills awaiting action as of Friday.
