Iowa Treasurer of State

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The State Treasurer is essentially the state's banker depositing funds and managing investments. We'll question the two candidates running for that office on this edition of Iowa Press.

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Funding for Iowa Press was provided by Friends, the Iowa PBS Foundation. The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure. Iowa PBS is supported in part by Wells Fargo. Fuel Iowa is a voice and a resource for Iowa's fuel industry. Our members offer a diverse range of products including fuel, grocery and convenience items. They help keep Iowans on the move in rural and urban communities. Together we Fuel Iowa. Small businesses are the backbone of Iowa's communities and they are backed by Iowa banks. With advice, loans and financial services, banks across Iowa are committed to showing small businesses the way to a stronger tomorrow. Learn more at IowaBankers.com.

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For decades Iowa Press has brought you political leaders and newsmakers from across Iowa and beyond. Celebrating 50 years of broadcast excellence on statewide Iowa PBS, this is the Friday, October 7th edition of Iowa Press. Here is Kay Henderson. 

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Henderson: Our guests on this episode of Iowa Press are running to be the State Treasurer for the next four years. Michael Fitzgerald worked for 8 years for Massey Ferguson as a Market Analyst and he was elected State Treasurer in 1982. He is currently the nation's longest-serving State Treasurer. He is the democrat in this race. The republican in this race is Roby Smith. He worked as a banker and he is a small business owner. He was elected to the State Senate in 2010. He is from Davenport. Gentlemen, welcome to Iowa Press.

Fitzgerald: Thank you for having us.

Smith: Thank you.

Henderson: Also joining the conversation are Katarina Sostaric of Iowa Public Radio and Erin Murphy of the Gazette in Cedar Rapids.

Murphy: Mike Fitzgerald, the Treasurer's Office is not one of the more closely monitored offices and state agencies out there. For people who are watching this and may not be as familiar but are going to be casting a vote this November, in your words what does the Iowa State Treasurer do?

Fitzgerald: Well, short as possible we're the state banker. We are responsible for the money that the state has, which is substantial. Right now the IDAL funds of $8 billion. I'm the custodian and trustee of the pension funds. IPERS alone is $40 billion and we have a couple of other smaller pension funds. Do College Savings Iowa, started that 24 years ago and it's running great. And we do the Great Iowa Treasure Hunt. So that along with being on boards and commissions and other things. So those are the main things we do in the Treasurer's Office.

Murphy: And Roby Smith, this is an office you are hoping to be elected to. Is there anything new you would like to bring to the office or anything in there that Mr. Fitzgerald listed that you think the office should get out of the business of doing?

Smith: Well, I'm glad that he said it's a banker. I'm a former banker. I have almost 10 years of banking experience and currently serve on a bank board in the Quad Cities. So I am uniquely qualified along with being at the State Capitol for 12 years to be that banker of Iowa. And you're talking about protecting the taxpayers' money. That's really the first thing that happens. You want to invest the money, get the best rate of return but also you want to be an advocate for tax cuts and returning more back to taxpayers. I'm proud that in the State Senate helped pass the largest tax cut in the history of Iowa. For seniors they're going to have no retirement tax starting January 1st on their pensions, on their IPERS, on their 401K and I'm proud of that record. And that's what we're going to take into the Treasurer's Office.

Murphy: And so describe that a little more when you say an advocate for tax cuts from the Treasurer's Office. What does that look like?

Smith: Yeah, so advocate -- most people don't realize this but at the Capitol, the Treasurer's Office can actually go in and for each bill they can register for or against the bill. The largest tax cut in the history of Iowa this year 2022 the Treasurer's Office didn't register, didn't register for that, the one that cut seniors' taxes to zero in a time when inflation is going up. We're helping seniors at the Capitol and Mike Fitzgerald's office did not register for that. The second largest tax cut in the history of Iowa in 2018, didn't register for it. And let me tell you, we made it so easy at the Capitol. It takes one minute to register for or against it. He hasn't advocated for tax cuts. To put it in perspective, the first time that I ever met Mike Fitzgerald was today at this table. And I've been in the State Senate for 12 years and I've never missed a vote on the Senate floor in 12 years.

Henderson: Mike Fitzgerald, would you care to respond?

Fitzgerald: Well, we certainly -- our responsibility in the Treasurer's Office is taking responsibility for the funds the state has and we've done a great job of doing that. That is what our mission is, keeping the money safe. Now, if the legislators and the Governor want to increase taxes or decrease taxes, that is their decision. It's not something that directly effects programs that we run in the State Treasurer's Office like unclaimed property or College Savings Iowa or IAble where we're helping Iowans with disabilities save. That is the things we register and support. And it has proven very successful and our office has done very well.

Murphy: So you don't agree, you don't see a role for the Treasurer's Office in taking a position on tax cut proposals?

Fitzgerald: Well, there's a lot of rules in raising taxes, cutting taxes that the legislators are responsible for, not something the Treasurer is responsible for. You probably didn't see the Attorney General or the Secretary of State or the Auditor registering in support or against those bills as well. So the bills that directly effect the finances of the state, that's where we're focused, that's what we promote.

Smith: And in 2015 the 529 program, I want to tell you about how I fixed the 529 program.

Henderson: And for people who aren't familiar, what is the 529 program?

Smith: So that's the college savings program where parents and grandparents can save tax free their money for college spending. And I can tell you that Fitzgerald talked about 24 years. Let's talk about the 529 program. April 30th is when you can go ahead and put it in there. That is because the legislation that I passed in 2015, under his watch it was December 31st. So now anybody in January, February, March or April can make a contribution and count it for the previous tax year, helping them out and expanding it. Under his watch, he never did that. He dropped the ball for almost two decades. It took me as a State Senator to come in and propose that. And by the way, in that bill you did not register on it. You did not register for or against that bill dealing with the 529 and the fix there.

Fitzgerald: Well, the 529 Plan we can talk about all day. I started it in 1998. A lot of other states had prepaid tuition plans, things like that. They failed for the most part. Other states have adopted now savings plans. Ours has been terrific. It is low cost, it has a good tax break and it has grown phenomenally. As people get familiar with College Savings Iowa they love it. I can't tell you, we're almost $7 billion in that fund, 280,000 accounts. But $4.5 billion has been taken out to send kids to college. It's working, it's doing what it is supposed to do and that is, I am so proud of that. And also because it has grown so much we have been able to cut the cost of College Savings Iowa nine times in the last 15 years. It's not free but it's getting pretty doggone low cost, less than one-fifth of one percentage point. People love it. It works. And as far as being able to contribute up until April 30th as opposed to cutting it off every year, well there's arguments both ways, bookkeeping reasons, people keep their tax records for which tax year. But we saw it benefit either way so that's why we didn't register on the bill.

Smith: It's not terrific when it has been downgraded by Morningstar. Morningstar rating agency out of Chicago rated the 529's all throughout the country and Iowa was downgraded. It was downgraded from a C to a D. It is one step away from failing. That is not terrific.

Murphy: -- just respond to that and then we've got to move on because we have a lot of --

Fitzgerald: No D on this and as a matter of fact it is recognized and it was recognized by Morningstar for Iowans to invest in. Now, they have recommended -- oh, Illinois. We know Illinois just six or seven years ago their program had to totally be revamped because they in their bond funds that they were investing in, people found out they were in a junk bond fund. People were suing Illinois. And we've seen that around the country, programs don't stand up. Our program has been solid for 24 years, people love it, it works. And the reason Morningstar had a concern, we have four different lifestyle options for investing, two of them you're pretty much all in bonds but there's still another aggressive one that as your child is in college you still have about 30% in stocks. They thought we were forcing people into that. We aren't. We explained it to them just a couple of weeks ago. You're going to see an upgrade in another couple of weeks. But that was the thing they were concerned about. But we have the options, 14 options, it works great.

Sostaric: Investing is a big part of the job of the Treasurer of State. And Michael Fitzgerald, you have said that keeping IPERS, the public employee retirement system, strong as one of your priorities. How do you do that?

Fitzgerald: Well, the one thing as Treasurer I'm custodian and I'm trustee, one of seven on that board, that sets policies and things like that. But there's also other things that happen. Again, republican legislators have a number of times introduced legislation to turn IPERS into a 401K. And there has been republican interest groups like Americans for Prosperity and Iowans for Tax Relief, they used to have it right on their website, the top goal is to turn IPERS into a 401K, get rid of these defined benefit plans, if you will. I advocated strongly for it before the last election, really went around this advocating that we keep it that way. And when the people of IPERS find out about it boy were they calling their legislators. IPERS works, it has for 70 years. I've been the Treasurer for 40 years. It has a great reputation. And so that's how I keep it strong.

Sostaric: Roby Smith, do you think IPERS is currently healthy and sustainable.

Smith: It is funded between 85% and 90%. Obviously we want to get the goal up to 95% to 100%. As Chair of the State Government Committee I'm in charge of IPERS. That bill that he referenced was filed by a legislator. It never saw the light of day. There's seven steps to become a law in Iowa. It didn't even get to step number one and that was in my committee so I can tell you no one is out there saying to get rid of it in the sense of moving it through the legislature. Promises made, promises kept. We're going to keep a look on IPERS, we're going to protect it. And I just want to get back to Morningstar. There was five levels, this was their last rating and we are second from the bottom, failing, we're one step away from failing. We have a grade of a D. They actually recommend Iowans not invest in it. That is Morningstar out of Chicago. They are a rating agency. They are the most premier one prestigious rating agency and they hit us on the fact that there's not enough to invest in. You need to spread your risk, you need to have a greater rate of return. We don't have that here in Iowa. And I'm getting the message out that this 529 program was downgraded on my opponent's watch. It is a grade D. One step away from an F. And there's only four states that went from a C to a D. We were one of those four and that was their most recent rankings right there.

Henderson: We have other issues to discuss. Mike Fitzgerald, do you have one last comment on funding college savings?

Fitzgerald: I just want to say that there's no D. Our funds, we give 14 options, people decide how they want their money invested and these funds are designed by Vanguard, Morgan Stanley, Cook Street and our investment team. They have been phenomenal. They have worked. And individuals talking with their own financial advisors pick what avenue they want to invest.

Murphy: Mike Fitzgerald -- we have to move on. We have a lot of topics to get to. Mike Fitzgerald, the last time you were on this show we talked about investments in Russian-owned entities and it was at a time when the war in Ukraine was just getting started and there was a movement for states to get out of that. And you said at the time that you were looking into that, that it was kind of difficult because the value of the ruble was crashing at the time too. What is the latest on that? Is the state still investing in Russian-owned entities?

Fitzgerald: The state's funds, its checking account if you will, has no Russian investments, never did. And the Peace Officer's pension fund did not. The judge's pension fund did not. IPERS had about one-tenth of one percent in some Russian bonds. And of course when that happened the Russian stock market shut down for a month, month and a half. And of course the value of those bonds basically went to pennies on the dollar. And so IPERS, we could have given them away to a hedge fund or something like that. But it was decided to hold onto them until there is an opportunity to get rid of them without losing everything. So one-tenth of one percent is not much but there is some exposure there.

Murphy: Roby Smith, generally speaking what would be your policy on these types of foreign investments in countries where things like this may arise across the globe?

Smith: Well, I'm the one that put the press release out a couple of days after Putin invaded Ukraine. I heard nothing from the Treasurer's Office. I put a press release calling on Mike Fitzgerald to look into it. Then it took a couple of days after that and then he finally released that he would look into that. I was the one directing the policy on that issue. I can say any country that is going to invade another country unprovoked, that is an unstable environment, we want to look to divest from something like that and I'm glad that I led on that effort.

Fitzgerald: He didn't lead on that effort. We never heard from him. Like you said, I'm right on the first floor of the Capitol. We never heard from him. There's a lot of people shouting to the press and this and that. And as a matter of fact, for the IPERS funds they have an investment staff, a professional investment staff that is watching it every day. And they were the ones that quickly determined we had this little amount and also it was wise not to panic and just sell them for pennies on the dollar.

Henderson: Roby Smith, Governor Reynolds announced in September that the state ended with a more than $1.9 billion surplus. How should that money be invested?

Smith: Well, we're going to look to give it back to taxpayers. I'll be that person. Like I said, I voted for the largest tax cut in the history of Iowa, the second largest tax cut in the history of Iowa. The Treasurer's Office didn't register on that, took one minute to do that, I'll go ahead and register on that. But it's about protecting the taxpayers' money and we've got to get into this issue dealing with the IRS. They wanted to snoop into bank accounts and any transaction $600 or more and they wanted the banks to have to report it to the IRS. And state treasurers around the country stood up and said, you can't do that, that's unconstitutional, that' s a privacy concern. What did we heard from the Treasurer's Office? We heard crickets. We didn't hear anything. We need a state treasurer that is going to stand up to the IRS and that is more important now than ever. We have our financial house in order. The federal government does not. I'll get the state treasurer that stands up to the IRS and I will not allow them to come in and look at your bank account unneeded like that. That affects every single Iowan and that is their private information. Oh and by the way, they now have 87,000 new agents. We need to stand on guard on that. Treasurer Fitzgerald did not stand up. I will stand up for the taxpayer.

Henderson: Mike Fitzgerald?

Fitzgerald: The U.S. Treasury makes their decisions and policies regardless of what state treasurers say. They have no influence on what the U.S. Treasury does on forming their regulations. Yeah, there was 15 or 16 right wing treasurers that said oh no, we don't want to see that. They had no effect. But they made noise and that was about it, noise because they have, the Treasury makes its own rules.

Smith: The rule didn't go into effect because state treasurers from around the country stood up. That rule is not into effect today because they stood up. And to sit here and say they had no effect and just made noise, I'll be the state treasurer that is the megaphone, I'll shine the spotlight on it  and thank goodness those state treasurers from around the country stood up. They're the ones that got it stopped. And I don't take this defeatist attitude that a state treasurer can't effect anything on the federal level. You have a voice, you have a megaphone, you have the pulpit to do that. You chose not to. I will stand up to the IRS. I will stand up and protect taxpayers.

Fitzgerald: That isn't, those treasurers putting out a press release didn't stop that. It flared up on all the talk radio and all that kind of stuff and the Treasury pulled it back.

Henderson: Roby Smith, if I could circle back to my question about investing. One of the things that the treasurer does is invest funds. There's no law on the books currently for returning the surplus to taxpayers. What do you do with that $1.9 billion now? Do you invest it like people at home do when they have money sitting around they're not using?

Smith: Well, so with the extra money we're going to help pay for the tax cuts that we phased in over a couple of years on that. Part of it is going to go to the taxpayer trust fund and return it to the taxpayers. So we're going to invest it and then the legislature will decide where it will go. I would advocate that we need to return it to the taxpayers. We're going to fund our priorities in education, health care, public safety. We've done that at the Capitol. The extra money needs to go back to the taxpayer. And I can tell you, if he's saying that talk radio killed that rule and not the state treasurers that stood up, it was the state treasurers that put the spotlight on it to where the IRS and the Biden administration went oh no, we're not going to go ahead with that rule. Thank goodness they stood up. I'll stand up. Treasurer Fitzgerald did not stand up for the taxpayers of Iowa.

Henderson: Mike Fitzgerald, what do you do with the $1.9 billion surplus until the legislature says return it to taxpayers?

Fitzgerald: That's right, the legislature appropriates and spends the money, not the state treasurer. What the state treasurer does is keep that money safe and we keep it invested. We have a policy well defined what type of investments we can invest in, most of them are government securities and then how much we can go out, one, two, three, we have a little money we'll put out even five years if our cash flows show that we're able to do that. But we keep the money safe, we keep it invested, we've been very successful at it and that is our job and we've done it.

Sostaric: Michael Fitzgerald, you've said that one of your priorities is for the state to create a state-run retirement program that people who don't have that through their employer could then tap into. How would that work? How much would it cost the state? And do legislators need to get involved in that?

Fitzgerald: Well they should. And we've asked a number of times and in this republican legislature it doesn't seem to move. But AARP tells us that over 50% of the people that are 55 and up have less than $10,000 saved for retirement. They also tell us that 50% of the people that work, mostly in small businesses, don't have access to a retirement plan through their work. And it also tells us from their polling that 85% of those people that work in those jobs, maybe small businesses and what have you, they would like a program where you could put 3% of your earnings, like most people do, into an auto IRA and every two weeks or every month have so much sent and it would be sent to the State Treasurer's Office where we would have professional investments like we do with College Savings Iowa. And then let's say you work as a bartender or something or at the lumber yard and you change jobs a year down the road but you get another job at another place. Well, you can just start funneling money in from that job to this auto IRA. And I'll tell you, the big response I've gotten is from small businesses. They've called me and said, you know I'm republican, but Mike this is a great idea, we need it. It's a way we'll be able to help and keep people.

Sostaric: Roby Smith, do you think that program would be a good idea?

Smith: Well, we can take a look at the program and see if it's something to be done. The key thing here, we're talking about seniors. And we just gave, we helped seniors out when inflation is the highest it has been in decades. Their taxes are going to be zero starting January 1st. I advocated for it. I voted for it. I'll advocate to cut taxes for the rest of Iowans. Treasurer Fitzgerald didn't even register on the bill that takes one minute to do that. That helps seniors out.

Murphy: Roby Smith, one of the panels that the state treasurer sits on is the State Appeals Board and that board deals with some of the lawsuits that come through the state including some of the recent cases involving sexual harassment. And one of the members of that board, democratic Auditor Rob Sand, has argued that he feels that the offenders in those cases should be more responsible financially in some of those cases than the state putting up all that money to settle these sexual harassment lawsuits. Do you agree with that?

Smith: Actually when that all happened I went over to the Attorney General's Office and I sat down and I said, what can be done to get it back for the taxpayers? And they said that they could choose to bring a lawsuit forward. I said, well I encourage you to do that to get that money back. So I'm all for taking a look at that for those offenders on that.

Murphy: We have just a little bit more than a minute left. Mike Fitzgerald, do you agree with your democratic colleague on the panel that offenders should be more --

Henderson: Republican.

Murphy: -- with Rob Sand. Sorry.

Henderson: Oh, sorry.

Fitzgerald: Rob wanted to go after them but the Attorney General's Office recommended no, don't go after them because it would be spending a lot of legal expenses, if you will, take a lot of time and the person you're usually going after doesn't have very much money to go after. So I usually follow legal advice and that's what I did this time and so did the republican head of the Department of Management.

Henderson: You're both running for an elected office. We have about 15 seconds left. Should the state Constitution be changed? And should this be an appointed office instead of elected? I'll let you answer first, Roby Smith.

Smith: No. I think the people of Iowa should vote on this. They should vote on who is going to protect their taxes, who is going to stand up to the IRS and I'm going to do that and I'm going to turn around the 529 program and get it upgraded. Instead of a D we're going to raise it up and I think the voters of Iowa should decide who is going to be the state banker of Iowa.

Henderson: Mike Fitzgerald?

Fitzgerald: I think it should be an elective office. Right from the state I used to travel the state with a republican State Auditor Richard Johnson and we campaigned for an honest set of books, if you will. We got that, had full transparency and now since 2008 Iowa has been rated AAA in large part because we have an open, honest, solid financial foundation. I think that is one example of an independent elected officer producing in the Treasurer's Office.

Henderson: We are out of time. Thanks for joining us today and sharing your views. This is part of a series of Iowa Press episodes where we are profiling the candidates running for statewide executive office. If you have missed our programs interviewing the candidates for Attorney General, Ag Secretary of Secretary of State, you can go and watch those episodes at iowapbs.org. For everyone here at Iowa PBS, thanks for watching.

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Funding for Iowa Press was provided by Friends, the Iowa PBS Foundation. The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure. Iowa PBS is supported in part by Wells Fargo. Fuel Iowa is a voice and a resource for Iowa's fuel industry. Our members offer a diverse range of products including fuel, grocery and convenience items. They help keep Iowans on the move in rural and urban communities. Together we Fuel Iowa. Small businesses are the backbone of Iowa's communities and they are backed by Iowa banks. With advice, loans and financial services, banks across Iowa are committed to showing small businesses the way to a stronger tomorrow. Learn more at IowaBankers.com.