SUMMARY

Approximately one year ago this office inaugurated a new program for the investment of those State funds not required for current operations. Our goal was the development of a deposit policy removed from arbitrary considerations, consistently applied to all Illinois banks, and having the effect of stimulating bank services in their communities.

During this first year more than $444,000,000 was allocated in time deposits under the Program and at higher interest rates than ever before achieved on State deposits. More than 753 banks participated in the various sections of the Program, with their awards calculated mathematically so as to assure equality.

At the completion of a year's experience, we are pleased with the Program's record of accomplishment. Under its Basic Deposit Section, all Illinois banks have had an equal opportunity to secure State deposits. Under the Community Services Section, additional deposits were channelled into banks demonstrating special need and service within their local area. Finally, a specific "linked" deposit program was responsible for the construction financing of over $100, 000, 000 in low and middle income public housing.

The concept of "linking" deposits to bank activities and community need is new. During the year a study of the Program by Systemetrics, Inc. financed by the Ford Foundation confirmed its conceptual soundness, helped with its refinement and documented its significant economic implications for the State. Through the use of a mathematical, input-output analysis of public fund investment, this study concluded that the concept was the best known method of public fund allocation, and that it should have broad applicability to other public and eleemosynary Treasurers.

Supported by this record, we are continuing the Investment Program concept in 1969. In order that it may achieve its fullest potentials, however, it has been modified somewhat. A general summary of the new, 1969 Program, its goals and requirements, follows.

Our allocation program for 1969 has three principal subprograms; Basic Deposit, Community Services and Specific Opportunity. Of these, as in 1968, the Basic Program is the lowest common denominator. It allows any bank in Illinois, provided it meets minimal loan ratio and interest rate criteria, to share in public fund deposits. As was true in 1968, the allocation is by mathematic proration, thus assuring equal treatment for all banks. The principal modification in the Program for 1969 is a reduction in emphasis. In terms of total commitment of State funds, a shift has been made from the Basic Deposit to the Community Services Program.

The 1969 Community Services Program differs in two primary areas from 1968. As indicated above, its dimensions have been expanded substantially. In 1968, $82.7 million was allocated under this program, as compared to $151 million in 1969, an 82% increase. Equally important, we have attempted to eliminate the bank-by-bank subjective judgment involved. In 1968 the intent of the Program was to recognize, and reward banks that had been of above average service to their communities in the field of public programs and related activities. In 1969, allocations have been based on the use of an "Activity Summary" provided by the bank, specifying their loans or investment activity in selected areas. Through the use of a computerized, mathematic proration, each bank receives its proportionate share of the funds allocated under this program.

Our third and final means of allocation is the Specific Opportunity Program. Unlike the Community Services Program, it looks to the future instead of to the past. Its purpose is to provide additional deposits to those banks willing to undertake specific community-oriented projects of their own choosing in consequence of such awards. It affords a clear "linkage" between State time deposits and specific community projects.

In 1968 this Program was termed "Housing", in that it sought to link State deposits to the construction financing of public housing under Sec. 221 (d)(3) of the National Housing Act. While successful in this field, we believe that banks should be allowed greater flexibility of choice for 1969, in selecting areas of linkage in cooperation with this office. Accordingly, we have set aside both Regular Funds and State Authority Funds for deposit in banks making specific linkage proposals to this office. Terms and interest rates will be flexible, so that all Illinois banks may participate.

Each of the above programs is described in greater detail later in this report. A section is devoted to each, providing full information as to how and when any and all Illinois banks can make application under each program.

A year ago, on establishing this new Program, we noted that the people's money should be used for the people's benefit. So long as the State has an earmarked fund structure that prevents efficient and timely allocation and expenditure of funds, it will have large fund balances. We believe such balances, properly used, can be a constructive tool of fiscal progress within Illinois.

Our Program has as its primary goal for 1969, the creation of an active, working partnership with Illinois banks, to assure that State fund balances become a dynamic resource. Whatever success our Program has achieved in the past can be attributed in good part to bank cooperation, advice and criticism. For this we are deeply grateful. The response and acceptance by the Illinois banking community of a deposit system which is known, consistent and rewarding, is a tribute to their sense of responsibility and regard for progress.

As was true last year, this report is a policy outline and not a blueprint. With further experience and study, our guidelines and procedures may be modified. Essentially, however, this report will indicate when and how any bank in the State can enter into a creative partnership with my office, to convert idle funds into active funds, for the public benefit.