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 – 137

Recurring operating expenses –

General Fund: $ 3,842,349

Bond Funds: $ 5,751,950

Pension and Trust Funds: $ 75,906,076

Second Injury Fund: $ 7,196,363

Unclaimed Property Fund: $ 5,929,576

Short-Term Investment Fund: $ 1,306,969

Capital outlay –

General Fund: $ -

Investment Funds: $ 7,388

Second Injury Fund: $ 10,242

Unclaimed Property Fund: $ 7,372

Short-Term Investment Fund: $ 1,733

Assets managed –

Pension and Trust Funds: $ 20.4 billion

Short-Term Investment Fund: $ 4.5 billion

Total abandoned property receipts: $ 69,508,102

Amount returned to owners: $ 32,353,133

Organizational structure – Executive Office; Pension Funds Management Division; Cash Management Division; Debt Management Division; Second Injury Fund Division; Unclaimed Property Division.

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 State Constitution, 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 82nd state treasurer on January 6, 1999, and elected to her second term in 2002 and her third term in 2006. The first African- American woman elected state treasurer in the United States, first African-American woman elected to statewide office in Connecticut, and only woman elected state treasurer in Connecticut history, Nappier is among Connecticut’s longest-serving state treasurers.

The Treasurer is an ex-officio member of the following boards, commissions and legislatively-mandated 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, Connecticut Higher Education Trust Advisory Committee, Student Financial Aid Information Council, Connecticut Student Loan Foundation Board, and Council of Fiscal Officers.

Public Service

The Treasurer is responsible for the safe custody of the property and money belonging to the State by receiving all money belonging to the State, making disbursements as directed by Statute, and manages, borrows, and invests all funds for the State. State revenue is received into the Treasury each year which covers the State’s disbursements. The Treasurer is also responsible for prudently investing the State pension and trust fund assets along with the State, State Agencies and local governments’ short-term investments funds and assets in the Connecticut Higher Education Trust. The Treasurer maintains an accurate account of all funds through sophisticated security measures and procedures.

Improvements/Achievements 2008-09

The Office of the Treasurer during fiscal year 2009 achieved a number of substantial goals that will benefit state residents and businesses, including:

Lower Second Injury Fund Assessment Rates – 2009 marks the eleventh consecutive year in which the Treasurer has been able to either reduce or maintain the assessment rate for Connecticut businesses – the longest period without an assessment rate increase in the history of the Second Injury Fund. The achievement is a direct result of management reforms, tighter fiscal controls initiated in 1999 when the Treasurer was elected. Since then, overall rates paid by employers through insurance companies have dropped by 72.5%; self-insured employers have seen a 73.5% reduction. Total savings to Connecticut businesses from reduced rates and lesser payments are expected to reach $482 million.

Bond Sale Attracts Record Number of Investors - $500,000,000 of General Obligation Bonds – nearly doubling the previous record set in June 2000 – were sold in October 2008 and due to the unprecedented demand the cost of borrowing was reduced to 4.9% - thereby saving taxpayers nearly $20 million in debt service costs. Originally planned at $250,000,000 the size of the issuance was increased to meet the overwhelming demand from both retail and institutional investors and allowed the State to further reduce yields in the final pricing by approximately 40 basis points.

Asset Recovery from Claims and Litigation - In 2000, the Treasurer initiated a multi-faceted effort to prevent losses due to the malfeasance of others and, whenever possible, to recover lost assets. This effort has included the negotiation of best practices contract terms, monitoring of contract obligations, the filing of claims, and managing Connecticut’s fair share of securities litigation cases.

In the fiscal year that ended June 30, 2009, the Office of the Treasurer recovered $8.5 million in class action lawsuits. The Treasury has regained a total of $29.3 million since 2000 by closely monitoring and participating in class action settlements.

Connecticut Higher Education Trust (CHET) - At the close of the 2009 fiscal year CHET, Connecticut’s 529-college savings program, had over $1.049 billion in assets under management representing 86,559 accounts, an increase of 9% or 7,023 accounts from 2008. This compares with just over 4,000 accounts and $18 million in assets when Treasurer Nappier took office in 1999. Since 1999, CHET has experienced significant account and asset growth and effective July 1, 2006 new and existing accountholders have taken advantage of the state tax deduction of up to $5,000 for single filers and $10,000 for joint filers.

Cash Management Division –

Short-Term Investment Fund – As of June 30, 2009, the Cash Management Division’s Short-Term Investment Fund (STIF) achieved an annual return of 1.49 percent, exceeding its primary benchmark by 0.19 basis points, thereby earning an additional $8.7 million in interest income for Connecticut’s agencies, authorities, municipalities and their taxpayers during the fiscal year, while also adding $4.6 million to its reserves. 

At the end of the fiscal year 2009, STIF had more than $4.5 billion in assets under management. Municipalities opened 16 new STIF accounts, bringing the total number of municipal accounts to 608. Standard & Poor’s reaffirmed STIF’s AAAm rating, the highest rating available, and STIF’s annual report received the Certificate of Achievement for Excellence in Financial Reporting from the Government Finance Officers Association.

Longer-Term Investment Portfolios – In addition to STIF, the Treasury manages two investment portfolios with longer-term investment horizons for stable balances of the state’s operating cash. The funds – STIF Plus and the Extended Investment Portfolio – earned an additional $6.5 million for the state during the fiscal year.

Community Bank and Credit Union Initiative – Pursuant to CGS 3-24k, the Treasury continues the Community Bank and Credit Union Initiative, which supports Connecticut-based banks and credit unions with assets not exceeding $500 million through investments in institutions’ certificates of deposit.  During fiscal year 2009, a monthly competitive bidding process was held through which $80.5 million was invested with 5 community banks and 1 community credit union at an average interest rate of 1.47 percent and now has 11 banks and 1 credit union signed up for the initiative with $245 million invested at an average yield of 3.45 percent through June 30, 2009. Monthly competitive bidding continues with 12 financial institutions eligible to bid.

Cash Management Operations – The Cash Management Division works with State agencies to improve the efficiency of the State’s cash management program by: accelerating state agency receipts via electronic payments 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 State agencies, and consolidating bank accounts to reduce service fees and unproductive balances.

Debt Management Division

During fiscal year 2009, the Debt Management Division, which manages $17.9 billion in total debt outstanding as of fiscal year-end, issued $2.1 billion of new money bonds and $581.2 million of bond anticipation notes to fund local school construction, state grants and economic development initiatives, Clean Water Fund loans, improvements to state universities, and transportation projects. As interest rates continued at relatively low levels during the year, the Division issued $74.2 million of General Obligation refunding bonds, $512.7 million of Special Tax Obligation refunding bonds, and $44.6 million of Clean Water Fund refunding bonds.

Since January 1999, debt refunding and defeasances have produced $596 million in debt service savings.

The last fiscal year proved to be one of the most challenging on record. In the first half of the fiscal year, the Division was required to navigate state debt issuance through highly volatile and nearly frozen credit markets following the near collapse of several major financial institutions. In the second half of the fiscal year, the Division moved quickly to implement strategies to address the State’s deteriorating cash position as well as options for financing growing budget deficits resulting from a nationwide recession.

The Division completed a major complex restructuring of Special Tax Obligation (STO) bonds in two phases which was necessitated by the credit rating downgrades of a major bond insurer.

The Division moved forward with new initiatives including the fuller implementation of the new BuyCTBonds website, development of a working group and recommendations to implement cost effective bonding options included in the federal stimulus bill, and submission of comments on financial and rating agency reform proposals.

The Division is actively involved with several boards and quasi-public agencies on behalf of the Treasurer. The Division consulted with the Capital City Economic Development Authority on the issuance of bonds to complete The Harford Convention Center Project, with the Connecticut Housing Finance Authority on the issuance of bonds for the supportive housing program, and with the Connecticut Student Loan Foundation on a variety of financial issues related, in part, to changes in the federal student loan program.

Pension Funds Management Division

Connecticut Retirement Plans and Trust Funds - As of June 30, 2009, the Connecticut Retirement Plans and Trust Funds (CRPTF) had $20.4 billion in assets under management. The three largest plans Teachers’, State Employees’, and Municipal Employees’ had assets totaling $11.4 billion, $7.3 billion, and $1.3 billion, respectively. One-year performance (net of fees) in an unsettled bear market for Teachers’, State Employees’, and Municipal Employees’ was negative 17.14 percent, negative 18.25 percent, and negative 14.90 percent, respectively. While returns were negative for the fiscal year, two plans did outperform their respective customized benchmarks by 48, and 36 basis points (Teachers’ and Municipal Employees’, respectively) while the State Employees’ plan was virtually flat at 6 basis points below the benchmark, an important measure of how pension fund performance compares to what is going on in the markets.

During the fiscal year, a revised Investment Policy Statement was adopted by the Treasurer and approved by the Investment Advisory Council during its February 2009 meeting. The modifications centered on establishing policy parameters for the newly created Alternative Investment Fund.

The CRPTF engaged in a search for its private investment consultant and hired Franklin Park to advise CRPTF on its private equity portfolio.

Four money manager searches were completed for: the Mutual Equity Fund for enhanced index and active extension mandates; the Developed Market International Stock Fund for small cap equity; the Emerging Market Equity Fund for core managers; and finally to fund the newly created Liquidity Fund with short duration, specialized money managers.

The Private Investment Fund committed $265 million to 4 private equity fund managers and the Real Estate Fund made $529 million in commitments to 8 real estate fund managers during fiscal year 2009.

Corporate Governance / Proxy Voting

Through shareholder activism, the pension fund seeks to protect and improve upon the value of its investments by advocating that companies in which the pension fund invests improve their corporate governance practices. The Office has engaged in corporate governance activities on a number of fronts, from writing letters and engaging in dialogue with companies, to filing shareholder resolutions on a unilateral basis or through alliances with other institutional investors. The Treasurer also regularly submits comments to the Securities and Exchange Commission (SEC), the U.S. Congress and the stock exchanges on corporate governance policy issues that may affect the CRPTF.

During fiscal year 2009 the Treasurer’s Office focused on key corporate governance issues, including executive compensation, election of members to boards of directors, climate change, and shareholder rights. Overall, the (CRPTF) filed or co-filed 25 shareholder resolutions and engaged with more than 30 companies. Eighteen of the 25 resolutions filed by the CRPTF for the 2009 proxy season focused on aspects of executive compensation, 5 addressed energy and climate change and 2 were on general corporate governance issues. Successful engagements led the CRPTF to withdraw 11 of the 25 resolutions with 1 additional resolution at GM dropped due to the bankruptcy.

Executive compensation was a major focus of the CRPTF in fiscal year 2009. The Treasurer addressed executive compensation on a number of fronts, including advocating an annual advisory vote on executive compensation at all companies (say on pay), calling for the independence of compensation consultants, working with several portfolio companies to adopt policies related to severance payments, addressing internal pay equity, and requesting policies requiring equity compensation be held for at least two years after retirement.

In the area of climate change and related energy issues, the Office continued to take a leading role in the Investor Network on Climate Risk (INCR) and the Global Warming Shareholder Campaign (GWSC). The Treasurer engaged with a number of companies on these issues to set greenhouse gas emission goals and targets for energy use reductions and report to shareholders on progress in achieving those targets. In fiscal year 2009, the Treasurer called on auto companies to produce more energy efficient vehicles and on electric utility companies to create new business models to do business under new energy and climate legislation.

As part of its corporate governance practices, the Treasurer is charged with enforcing the state law relating to religious non-discrimination practices in the workplace. This law is based on the MacBride Principles, which are a corporate code of conduct for companies doing business in Northern Ireland designed to address religious discrimination in the workplace. They consist of fair employment and affirmative action principles. During the fiscal year, two companies agreed to implement the Principles; The Hilton Hotels and Regis Corporation.

Treasury staff continue to monitor and communicate with companies doing business in Sudan. In FY 2009, two additional companies were subject to divestment or prohibition on investment as required under the Sudan Restricted Company List pursuant to Conn. Gen. Stat. §3-21e adopted in 2006. Under the law, the Treasurer has the authority to engage those companies and potentially divest holdings in those companies if their business is contributing to the government’s perpetuation of genocide in Sudan. In May 2007, the Treasurer announced that she was divesting CRPTF’s holdings in China Petroleum and Chemical Corp., and prohibiting investment in 5 other companies operating in Sudan: Bharat Heavy Electricals Ltd., Nam Fatt Corp., Oil and Natural Gas Corp., PECD Group and Sudan Telecom. In 2009, the CRPTF also divested from Petronas Capital Ltd. and Wartsila Oyj. At the time, CRPTF had holdings valued at slightly more than $2 million in the two companies.

Unclaimed Property Division

During fiscal year 2009, the Unclaimed Property Division returned $32.4 million to about 14,500 rightful owners, an accomplishment representing the largest amount of dollars returned by the Division, while the Division received $69.5 million in unclaimed property receipts voluntarily reported by holders. Connecticut General Statute section 3-69a (2) required the Unclaimed Property Division to deposit $17.9 million into the Citizens’ Election Fund and the balance into the General Fund.

During this same period, 55,112 claims were filed, 754,088 searches for abandoned property were performed through the website and 48,938 telephone inquires were answered. As of June 30, 2009, there was $396.3 million in escheated property held by the State belonging to 872,796 owners listed on the Office of the Treasurer website.

Second Injury Fund Division

The Second Injury Fund provided $38.4 million in indemnity, medical and settlement payments to injured workers. The number of injured workers receiving bi-weekly benefits is now 353 compared with 365 a year ago.

The Fund assessment rate will decrease from 3% to 2.75% for insured employers, and the rate for self-insured employers will decrease from 4.7% to 3.84%. 2009 marks the eleventh consecutive year in which the Second Injury Fund has either reduced or maintained the assessment rate, the longest period without an assessment rate increase in the history of the Fund. Total savings to Connecticut businesses since 1999 is estimated at $482 million including $3.6 million in projected savings for fiscal year 2010.

The Fund completed a total of 183 settlements at a cost of $9.9 million. Through June 30, 2009, the Fund has paid 12 injured workers receiving bi-weekly benefits settlements at a cost of $2.8 million with an estimated future net savings of $13.9 million.

The Fund is continuing to implement the General Assembly’s 1996 mandate to reduce the financial impact of the Fund on Connecticut’s businesses. As of June 30, 2009, the Fund’s open claim inventory is 2,410, including 590 “second injury” claims. The 590 open second injury claims represents a reduction of 49 open claims, (7.7%) from last year’s total of 639.

Reserves (estimated future payments) for all open claims as of June 30, 2009 are $437.7 million, a reduction of $6.1 million (1.4%) from a year ago and a reduction of $400 million (48%) from 1999. Reserves for “second injury” open claims are $262.1 million, a reduction of $8.6 million, (3.2%) from last year.

Connecticut Higher Education Trust (CHET)

The Treasurer is trustee for Connecticut’s 529 college savings program, CHET, which features low fees, federal and state tax exemption on earnings for qualified withdrawals, a state tax deduction and a wide range of investment options to accommodate different risk tolerances.

In the midst of a volatile market, CHET continued to demonstrate significant new account growth during fiscal year 2009, increasing the number of new account accounts by approximately 9% over the previous year from 79,536 at June 30, 2008 to 86,559 at June 30, 2009. 89.2% of the new accounts increase was from Connecticut residents. At the end of fiscal year 2009, program equity of account holders was $1.049 billion compared with $18 million in assets representing just over 4,000 accounts and when Treasurer Nappier took office in 1999. The level of growth demonstrated since 1999 is reflective of strong new account opening activity and increased contributions from existing account holders who took advantage of the new state tax deduction and other program enhancements.

In fiscal year 2008, a new 100% Equity Index Fund, a 100% Fixed Income Fund, an Aggressive Managed Allocation Option, and a Social Choice Option were introduced. CHET now offers customers eight different investment options. At the end of 2009 fiscal year, the Managed Allocation Option remained the most actively utilized investment option in the CHET program capturing 57% of total program assets, while 16% of assets were invested in the High Equity, 15% in the Principal Plus Interest Option, 4% in the Equity Index Option, 3% in the Aggressive Managed Allocation Option and 5% combined in the 100% Fixed Income Money Market and Social Choice Equity Options.

Financial Education

Treasurer Nappier is committed to using the Office of State Treasurer as a catalyst for financial education and expanded economic opportunity. The Office has forged partnerships between and among community organizations, state agencies and the private sector to develop initiatives to increase financial literacy and promote access to financial education tools and resources for all segments of the population.

A particular area of interest for Treasurer Nappier is the financial education of Connecticut’s youth and helping them to establish the right financial footing to achieve their lifelong financial goals remains a high priority. In fiscal year 2009, Treasurer Nappier joined with the Junior Achievement of Southwest Connecticut to host the third annual forum at Quinnipiac University for high school students on financial that featured workshops and free financial materials.

Also in fiscal year 2009, Treasurer Nappier joined with the United Way of the Capital Area and a statewide working group to launch a financial education “super center” to assist families with personal finances, tax preparation through the Earned Income Tax Credit (EITC), and other asset-building tools. The Financial Resource Center (FRC) at Co-opportunity, Inc. opened in Hartford’s Asylum Hill neighborhood in the fall of 2008 and has provided free financial assistance to 400 Connecticut residents since its opening.

During this fiscal year, the Treasury hosted the seventh annual Money Conference for Women, which was attended by over 400 women. This free daylong conference presents money management strategies in a conference environment for women of all ages, incomes and levels of financial knowledge led by recognized leaders in the financial services industry.

In fiscal year 2009, Treasurer Nappier partnered with three state chapters of the national Financial Planning Association (FPA) to launch the FPA Pro Bono Network. The FPA Pro Bono Network offers individuals and families a free 30 minute one on one consultation with a certified financial planner to help understand basic financial planning, choose the right insurance, cope with job loss or a life crisis, and plan for education or retirement. The Network aims to help participants learn about the importance of financial planning to reach their goals. Since it was launched in November 2008, 50 certified financial planners volunteers have provided 85 one-on-one thirty minute consultations. A dedicated web site is available for the public to access the network at http://fpactprobono.org.

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 of the Treasurer’s Office contain clauses requiring non-discrimination and vendors are required to certify the same. The Treasurer’s Office under this administration has consistently met or exceeded annual Set-Aside Program goals.