Office of the State Treasurer

At a Glance

DENISE L. NAPPIER, State Treasurer

Howard G. Rifkin, Deputy State Treasurer

Established – 1639

Statutory authority – State Constitution

Central office - 55 Elm Street,

Hartford, CT 06106

Average number of full-time employees – 155

Recurring operating expenses -

General Fund: $3,066,388.97

Bond Funds: $3,920,977.18

Investment Funds: $55,925,332.64

Second Injury Fund: $7,251,241.06

Unclaimed Property Fund: $3,030,264.03

Short-Term Investment Fund: $907,698.64

Capital outlay –

General Fund: $1,000

Investment Funds: $2,735.58

Second Injury Fund: $22,311.77

Unclaimed Property Fund: $7,347.83

Short-Term Investment Fund: $911.86

Total abandoned property receipts - $70,408,434.53

Amount returned to owners - $9,441,859.74

Mission

To serve as the premier Treasurer’s Office in the nation through effective financial management of public resources, high standards of professionalism and integrity, and expansion of opportunity for the citizens and businesses of Connecticut.

Statutory Authority

The Office of the Treasurer was established following the adoption of the Fundamental Orders of Connecticut in 1638. As described in Article Four, Section 22 of the Connecticut Constitution State, the Treasurer shall receive all funds belonging to the State and disburse the same only as may be directed by law. Denise L. Nappier was sworn in as the 82^nd State Treasurer on January 6, 1999 and was elected to her second term in 2002. The Office of the Treasurer includes an Executive Office and five distinct divisions, each with specific responsibilities: Cash Management, Debt Management, Second Injury Fund, Pension Fund Management, and Unclaimed Property.

The Treasurer is a member of the following boards, commissions and legislative committees: Banking Commission; Connecticut Development Authority; Connecticut Health and Educational Facilities Authority; Connecticut Higher Education Supplemental Loan Authority; Connecticut Housing Finance Authority; Finance Advisory Committee; Investment Advisory Council; Connecticut Lottery Corporation; Standardization Committee; State Bond Commission; State Information and Telecommunications Systems Executive Committee, Waterbury Financial Planning and Assistance Board, Connecticut Higher Education Trust, Council of Fiscal Officers and Connecticut Resource Recovery Authority.

Information Reported as Required by State Statute

Affirmative Action

In compliance with Connecticut General Statutes Section 46a-78, the Treasurer annually submits an affirmative action program to the State Commission on Human Rights and Opportunities. The Office pledges to make every good-faith effort to achieve all objectives, goals and timetables in its affirmative action plan. Contracts, leases and purchase orders by the Treasurer’s Office contain clauses requiring non-discrimination and vendors are required to certify the same.

Improvements/Achievements 2002-03

Cash Management Division

The division achieved an annual return of 1.64 percent in the Short-Term Investment Fund (STIF), exceeding its primary benchmark by 44 basis points, thereby earning an additional $16.1 million in interest income for Connecticut’s governments and their taxpayers. Municipalities opened 19 new STIF accounts, bringing the total number of municipal accounts to 563.

During the year, the division undertook several initiatives with state agencies aimed at: accelerating payments to state agencies via electronic transfers and the Internet; streamlining the flow of funds between concentration accounts and individual disbursement accounts to reduce manual processes and increase invested funds; speeding the flow of bank information to and between state agencies; and consolidating bank accounts to reduce service fees and unproductive balances.

The Treasurer’s Office proposed legislation, enacted by the Legislature as Public Act 03-226, which allows the Treasurer to invest up to $100 million with the State’s community banks and community credit unions. The banks and credit unions would compete for the investments under a competitive bidding process. The purpose of the program is to provide financial support and resources for smaller banks in the state to enhance their ability to support economic development and access to banking services for underserved markets within their local communities.

Debt Management Division

This year has featured several important initiatives and noteworthy actions in the Debt Management Division. The Division:

• Took advantage of falling interest rates by issuing $748.7 million in refunding bonds in three refundings of General Obligations and Special Tax Obligations, which will save $59.4 million over the life of the bonds. Interest rate swap agreements were used to maximize refunding savings opportunities.
• Utilized positive cash flow from the Second Injury Fund to defease $29.8 million of the Fund’s long-term debt and shorten the final payment of Second Injury debt to 2011 from 2013.
• Managed the sale of $1.7 billion of General Obligation, Economic Recovery, Special Tax Obligation, and UConn Bonds to provide new funding for State projects and grants, local school construction, transportation infrastructure and improvements to the State’s colleges and universities.
• Developed a more flexible credit structure for future issuance of Clean Water Fund and Drinking Water Fund Bonds while maintaining the triple A credit ratings for the program.
• Managed the first sale of State debt in the European market issuing taxable variable rate Eurobonds at a positive spread to rates available in the domestic market.
• Issued the first Economic Recovery Notes since 1991 to finance the State’s 2002 deficit using a fixed and variable rate structure to minimize the cost of the five-year note issue.

Pension Funds Management Division

As of June 30, 2003 the Connecticut Retirement Plans and Trust Funds (CRPTF) had $18.3 billion in assets under management. The Fund also achieved a five-year annualized return (gross of fees) of 3.12 percent, placing the pension fund in the 37^th percentile of the Trust Universe Comparison Services (TUCS) universe, a database of plan sponsor information of public funds with assets of greater than $1 billion. This indicates that CRPTF outperformed 63 percent of other public pension plans with assets greater than $1 billion.

The Office of the State Treasurer and the State’s Investment Advisory Council (IAC) developed a comprehensive Investment Policy Statement in 2001 that provides policy guidelines for investments by the state pension fund. The formal Investment Policy Statement is an important element in the comprehensive Treasury reform law approved by the Connecticut legislature. Treasurer Nappier proposed and advocated the creation of such a guiding document, which underscores the Treasurer’s commitment to professional management, high standards of excellence and the utmost integrity. The members of the Investment Advisory Council were consulted throughout its development, unanimously approving its adoption on March 13, 2002. Since the adoption, changes have been made to Part III, Article IV – Asset Guidelines for the Mutual Fixed Income Fund, and changes for the Real Estate Income Fund are being finalized. 

Treasurer Nappier successfully launched her administration’s comprehensive program to become active shareholders during the 2001 proxy season, following adoption, for the first time since 1995, of comprehensive proxy voting policies. During 2003, the Treasurer’s Office, widely viewed as among the more active public pension funds advocating corporate governance reforms, engaged over 25 companies on key corporate governance issues including annual election of members of the board of directors, climate change/global warming, executive compensation, expensing of stock options, board diversity and shareholder communications with board members.

The Treasurer also was an active participant in addressing corporate governance reforms before members of Congress, the Securities and Exchange Commission, and the major stock exchanges.

Unclaimed Property Division

During fiscal year 2002-2003, the Division exceeded its number of claims paid from the previous year, paying 13,368 unclaimed property owner claims for a total return of $9,441,859.74 million in unclaimed property. Also in the fiscal year, the Treasury's Unclaimed Property Division, with an enhanced holder outreach program, collected an unprecedented $70.4 million -- the largest amount ever collected in one year in the State's history.

The Treasurer’s Office proposed revisions to Connecticut unclaimed property laws in Senate Bill 121 of the 2003 General Assembly session, “An Act Adopting the Uniform Unclaimed Property Act.” The Treasury was joined in support of SB 121 by consumer organizations including AARP. The text of SB 121 was incorporated into the budget adopted by the legislature. The new provisions of the law will shorten dormancy periods for unclaimed property, eliminate dormancy fees and expiration dates for gift certificates and gift cards, and require any unused portion of gift certificates and gift cards to be escheated to the State Treasurer’s Office after a three year dormancy period. Passage of the new law will increase the rate that abandoned property is escheated to the State, increase the State’s General Fund and strengthen the consumer protection interests of Connecticut residents.

Second Injury Fund (SIF) Division

The Second Injury Fund’s major achievements result from the continued implementation of a series of management reforms instituted by Treasurer Nappier. Among the highlights in FY 2003:

· Effective July 1, 2003, assessment rates will be reduced for the third consecutive year from 8 percent to 6.5 percent for insured employers while the rate for self-insured employers remains at 11.6 percent. Under the Nappier Administration, assessment rates have not increased in five years.

· $6.1 million in underpaid assessments and interest was collected through the assessment audit program.

· The Fund used $33.8 million in excess cash to extinguish long-term debt earlier then originally scheduled saving $1.5 million in interest costs annually. Total long-term debt payments have been reduced by six years through the use of excess cash under Nappier Administration.

· Open claims were reduced from 2,737 to 2,285 and outstanding reserves reduced by $34.8 million from $544.3 million to $509.5 million.

· Recovered $1.3 million in outstanding receivables.

· Settled 177 claims at a cost of $10.1 million. In addition, eliminated a revolving credit agreement only available for final settlements with an aggregate commitment line of $88.8 million resulting in an approximate annual cost savings of $135,000. Final settlement payments have been paid from assessment revenue, not the line of credit for 2003.

Connecticut Higher Education Trust (CHET)

The CHET program was authorized by the Connecticut General Assembly in 1997 and began operations in 1998. Effective December 1999, Treasurer Nappier replaced the original undercapitalized program manager with TIAA-CREF, one of the nation’s leading non-profit financial services organizations.

A number of changes made in conjunction with the new program manager included revisions that Treasurer Nappier advocated to make the program more accessible, affordable and flexible for Connecticut families. In March 2001 CHET also added two investment options, offering a more aggressive and more conservative investment strategy. The new options provide Connecticut families saving for future college expenses additional flexibility to choose investment vehicles which meet their particular needs, as well as their individual tolerance for investment risk. As a result, the number of CHET accounts has grown rapidly. In May 2001 the Federal tax reform act included a provision that made CHET earnings exempt from federal taxes when used for eligible college expenses. This provision took effect for withdrawals after January 1, 2002 (and sunsets with the rest of the tax act at the end of 2010). During FY 2001-2002, CHET assets more than doubled, and the number of accounts nearly doubled.

At the end of FY 2002 there were 26,330 CHET accounts and total assets had increased to $207,765,000. Growth continued in FY 2003, and at June 30, 2003 the number of accounts increased to 35,273 with total assets of $331.8 million.

Financial Education / Individual Development Account (IDA) Program

Financial education is a cornerstone of the administration of Connecticut Treasurer Denise Nappier, grounded in the belief that financial education can open the door to economic opportunity and self-sufficiency. In 2000, the Treasurer moved forward on a commitment to develop initiatives that would provide economic opportunities for Connecticut citizens and businesses through asset-building strategies and financial education. A major goal of the effort is to ensure the accessibility of these programs to youth, adults across the generations and underserved populations in the state.

Those efforts followed the establishment of a Task Force on Individual Development Accounts, the first in the nation, by Treasurer Nappier shortly after taking office in 1999. During the 2001 and 2002 General Assembly sessions, Treasurer Nappier’s Office successfully advocated for an appropriation for the Connecticut Individual Development Account (IDA) Initiative, administered by the State Department of Labor. Individual Savings Accounts allow working poor Connecticut families to save to purchase a home, continue their education, or start-up a small business. Through the advocacy of the Treasurer’s Office, the 2000 General Assembly adopted a statewide IDA program.

During the past several years, new IDA Programs have started in Connecticut and participants who have been in Programs for several years have reached their savings goals and are purchasing assets. There are now at least 19 IDA Programs operating in the State. In the past, several new Assets for Independence (“AFIA”) Federal Demonstration Grants were received. One, co-administered by the Connecticut Department of Labor (“DOL”) and the Connecticut Association for Community Action (“CAFCA”) will provide 61 new IDAs in the state. The Connection, Inc., in Middletown, received a grant from DOL, funded by AFIA, under which 57 accounts will be opened. Co-Opportunity, Inc. received an AFIA grant to operate 21 IDAs. In April, DOL released an RFP for the Connecticut IDA Initiative and have recently awarded a grant to CAFCA for a collaboration of Community Actions to operate 85 accounts.

The original IDA Task Force included members from the public and private sector and the active involvement of community organizations. That model has carried through across the breadth of financial education programs developed by the Treasury, bringing national programs to our state for the first time and creating new initiatives with the assistance and expertise of local organizations.

The focus of financial education activities through 2002 was primarily on adult populations and community-based financial education, including full-day financial education conferences covering topics on personal financial management, saving for college, retirement planning, asset-building through homeownership, entrepreneurial pursuits, and community development. In addition, programs were offered to targeted populations such as the Money Conference for Women, personal financial management training for housing authority residents, banking access and credit management for community action agency clients, and a project to advance the development of affordable housing by providing technical assistance and capacity building for nonprofit developers. These conferences and programs were free and delivered by community and private sector organizations around the state.