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Time deposit open account program. |
04LSO-0218.C1 |
FISCAL NOTE ( HB0100)
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FY 2006 |
FY 2007 |
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NON-ADMINISTRATIVE IMPACT |
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Anticipated Revenue Decrease: |
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NUMEROUS FUNDS |
180,000 |
135,000 |
90,000 |
Source of revenue decrease:
Interest income from banks participating in the Time Deposit Open Account Program
Assumptions:
Since July 1, 1999, the rate of interest charged to banks has been calculated based upon the prior quarter’s rate of return on the State Treasurer’s short-term cash pool, but statutorily this cannot be less than three percent (3%) per annum. Due to market conditions over the past two years, the interest rate on the short-term pool has been well under this three percent (3%) threshold; however, the Treasurer must charge the banks the minimum of three percent (3%). When this occurs, many banks withdraw from the program as they can borrow funds from other sources (Feds) at a lower interest rate. If the minimum interest rate were deleted from the statute and interest rates remain low, it is likely that the banks would apply to borrow funds from this program.
Although it is difficult to predict the exact impact (revenue decrease), it is anticipated that the short-term cash rates will remain low over the next few years. If we were to assume that short-term cash rates will be 1% for FY2005, 1.5% for FY2006 and 2% for FY2007, and that the amount of funds loaned out to banks during the next three years remains at its current level of about $9 million, the decrease in interest earned would be $180,000 for FY2005, $135,000 for FY2006 and $90,000 for FY2007. If more banks drop from the program during this time, there would be less impact, but if more banks participated in the program there would be a large decrease.
Prepared by: Sharon Garland, Treasurer’s Office Phone: 777-7408