Treasurer reforms linked deposit program

Scott Fitzpatrick: Program would have capped out this year if no changes were made.

The size of a state linked deposit program has hit more than $600 million – tripling in size over the past year and it’s threatening to hit a $720 million cap. That’s led state officials to find ways to bolster its long-term viability.

Missouri FIRST – which stands for Financing Investment in our Rural, Small business, and Technology communities – has grown from $200 million just a year prior, according to state Treasurer Scott Fitzpatrick.

“I was a little surprised,” said Fitzpatrick, who took office Jan. 14, after being appointed by Gov. Mike Parson to succeed new Attorney General Eric Schmitt. “It was an unanticipated priority that we adopted very early on.”

Through the growing program, the state treasurer’s office partners with qualified-lending institutions to issue low-interest loans to small businesses, agricultural operations and local goverments. Low-interest deposit types are agriculture, alternative energy, job enhancement, local governments, multifamily housing and small business, according to the treasurer’s website. Interest rates through the program are usually in the 2-3 percent range.

When the treasurer’s office began studying the loans comprising the current $600 million sum, Fitzpatrick said 95 percent of those approved were less than $2 million, but several were also in the $10 million range. That ate up a lot of cap space, he said, adding the program is capped statutorily at $720 million of total deposits.

“I think it would have capped out in the next three to six months,” Fitzpatrick said.

Fitzpatrick’s changes, announced Feb. 28, affect all outstanding applications.

Here are the key reforms:
• linked deposits will be no larger than $1 million, per loan request;
• linked deposits will no longer be approved for refinancing existing bank loans helping focus available funds on new economic development projects, the original intent of the program; and
• individual financial institution participation will be limited to 20 percent of the statutory cap.

Additionally, Fitzpatrick said the state lawmakers are considering legislation to raise the statutory cap to $800 million. House Bill 1029, sponsored by Rep. Jack Bondon, R-Belton, was approved by the legislative oversight committee, and it’s expected to appear for debate on the House floor soon, Fitzpatrick said. Also, Fitzpatrick testified March 13 before the Senate insurance and banking committee in support of the sister Senate Bill 439, sponsored by Sen. Justin Brown, R-Rolla.

Fitzpatrick’s program changes come a year after Schmitt put in place his own reforms, which emphasized cutting red tape, expanding access and modernizing the system. According to a news release, yearly certifications were eliminated to reduce paperwork from borrowers, eligibility criteria for agricultural loans were expanded and the application process was streamlined.

In southwest Missouri, Mid-Missouri Bank, Hawthorn Bank and OakStar Bank are the top three lending institutions for the Missouri FIRST program, according to the state treasurer’s office. Active deposit amounts at Mid-Missouri total $28.4 million, followed by $24.3 million at Hawthorn and $16.7 million at OakStar.

In 2018, Mid-Missouri provided 23 loans through the program, said Andrew Moore, marketing director. The agriculture, commercial and small-business loans totaled just over $9 million and averaged $400,000 in size.

“We wish it was a better-known program,” Moore said, noting the bank has worked with the Missouri linked deposit program since 2011.

He said bank officials support Fitzpatrick’s changes, as they’re intended to keep funds available so the program can continue.

The loans are issued by the treasurer’s office for a one-year term, which can be renewed annually for five years. According to the state treasurer’s website, loan rates are based on a certification by the state lender of the normal lending rate that would be offered to the linked-deposit applicant. The lending rate is multiplied by 70 percent to determine the new loan-ceiling rate for the applicant.

The program has undergone several name changes in its history, which stretches back to the 1980s, including MO BUCKS and BIG Missouri, according to the state treasurer’s website.

“I feel like with the changes we made most recently, we’ll most certainly get through 2019 without any issues,” Fitzpatrick said, adding the state should be in good shape for 2020 as well.

Loans roll off each year, freeing up cap space. He said that should clear around $30 million in 2019.