Richard Ellis

Thank you all for your support. It has come in so many ways—talking to neighbors, distributing literature, putting up signs and spreading the word in many different ways. I know many of you volunteered to help and we never got you involved, but hang in there. I will need lots of help for the general election in November.

In the coming weeks I hope to have time to focus more on the blog and to discuss issues happening in the financial world. I’ve been distracted by the campaign and changes going on in my family the past few months. I’m hoping life gets back to normal, but normal may not be the same.

Again, thank you for your support. It was an amazing victory and it happened because of you.

Now we’re just a couple days away from the primary election. My opponent continues to make statements that we need to focus on the issues. Having received three of his mailers, I keep waiting for him to discuss the issues of the State Treasurer’s office, but he continues to avoid them. He seems confused thinking that the State Treasurer is a member of the legislature as he continues to focus on cutting both taxes and spending—both issues that only the legislature can control.

If he wants to be a legislator so badly, then why didn’t he run for his seat in District 45 again?

Let me talk about a couple issues that the State Treasurer needs to understand.

First is the difference between a basis point (1/100 of a percent) and one percent. For all his private sector experience, he doesn’t know the difference between these two terms. Why is this important to know? Because when the state invests its money or issues bonds, the difference in the rates received or paid is discussed in terms of basis points, not percentages. Underwriters may have to reprice a bond issue and change the rate by 5 basis points. An example would be to change the yield on the bond from 3.85 percent to 3.90 percent, a change of 5 basis points, not 5 percent. However, the underwriter would say they had to cheapen the rate by 5 basis points.

So why am I harping on this issue? Throughout the campaign and still on my opponent’s website he has stated that his investments have out performed the Public Treasurers Investment Fund by 22 percent and 30 percent. I confirmed with the portfolio manager (the guy that really does the investing) at Zions Liquid Asset Management that the difference was two tenths and three tenths of a percent. That’s a far cry from what he has told everyone on the campaign trail. (If my math is right, and it is, he has overstated his performance by 100 times) I just want people to understand what his “extensive private sector experience” has taught him.

A second issue is the difference between a discretely managed medium term portfolio and a stable net asset value fund that provides daily liquidity. In my opponent’s mind, these are the same. The guys at Zions Liquid Asset Management again confirmed to the Money Management Council that they are targeting funds that have a two to three year investment horizon. One would expect that their return would be better because their investment horizon is longer and they do not have a need for daily liquidity. This is comparing apples and oranges. Again, this is a subtle difference lost with “extensive private sector experience.”

I also noted that he professes to have worked with the State Treasurer’s office and county and city treasurers to negotiate multi-million dollar contracts. I know he has never negotiated with the State Treasurer’s office, because I’m the one he would have worked with, and I have yet to talk with a public treasurer that knows him. In fact, other than the Sandy City account that was laid in his lap, I’m not aware of any contracts he has negotiated. Maybe he could clarify this with some examples and names of people he has worked with.

I leave it now in the hands of voters. Do you want a qualified, experienced, competent and educated State Treasurer? Or do you want to extend the power and control of the state legislature into the executive branch of government? (See Salt Lake Tribune Editorial, Saturday, June 21, 2008) Choose wisely because you’ll have to live with the outcome.

It’s been too long since I’ve blogged. Too many things going on in my personal life and with the campaign, but with the Primary just around the corner, I thought it was a good time to check in again.

My opponent has pointed many of you to this site with his recent mailer. I should thank him for the free advertising. It’s always nice when someone else knows more about my positions and philosophies than I do and shares that with the masses.

My opponent keeps asking that we focus on the issues rather than all that we’ve seen in the media lately. I agree. We should focus on issues that pertain to the State Treasurer’s office. However, he hasn’t been willing to join me on KTALK radio, or the Meet the Candidate Night in Price on June 16. It’s hard to discuss the issues by yourself. He has one more opportunity this week with Rod Decker on Take Two at 10:00 a.m. on Sunday, June 22. Rod told me that the invitation was declined, but he has kept it open just in case.

His focus on issues seems to be on issues unrelated to the State Treasurer’s office. He continues to talk about what he did as a legislator, but the last time I checked, the State Treasurer was not allowed to vote on bills, and in fact, is not even allowed on the floor of the House or Senate without an invitation. Advocating tax cuts is great political rhetoric, but in reality, everyone follows the lead of legislative leadership. The State Treasurer weighing in on the issue is irrelevant because we all know these decisions are made by a select few in legislative leadership and the masses of the legislature fall in line.

The “good ole boys club” in the legislature continues to try and cast me as a fiscal liberal. They continue to give me credit for stalling the Worker’s Compensation Fund settlement. For the record, the only way it could happen was for legislature to pass a bill. The bill never passed. Looks like THEY should get the credit for stopping that one, not me.

I’ve yet to find a public statement from me proposing higher taxes. Another attempt by the “good ole boys club” to twist the facts to meet their needs. In fact, I was part of Governor Walker’s tax reform team that developed a plan to lower income and sales tax to levels much lower than we now have. The legislature wasn’t willing to make the tough decisions to make that happen, so we have higher tax rates than proposed by Governor Walker.

And what’s with another cheap shot about the appropriations spending limit? Fact: the state has a statutory debt limit of $1.1 billion. Fact: the state has outstanding debt and authorized debt that exceeds $2.1 billion with the promise of another $1.5 billion or more to be authorized next year for Utah County. So what does a statutory debt limit mean? NOTHING. The legislature will find a way to work around it. What does an appropriations spending limit mean? NOTHING, because again, the legislature will find a way to work around it. We elect legislators to make the tough budget decisions and set spending priorities each year, not hide behind meaningless statutory spending limits. “Fiscal conservatives” shouldn’t need a limit to control his/her spending or to reduce taxes–that should be an innate part of their makeup. Quit the political rhetoric and make tough decisions.

I think the informed voter has recognized what this race is all about. It isn’t about Richard Ellis versus his opponent. It’s Richard Ellis versus the “good ole boys club” of the legislature. Leadership is backing one of their own who lacks experience, education and competence, in an attempt to control a portion of the Executive Branch of government. Whatever happened to the balance of powers laid out in the constitution?

Be an informed voter. Vote for the candidate that has the education, experience and qualifications to talk about the real issues of the treasurer’s office, not just political rhetoric. Vote to keep the office independent. Call your city or county treasurer and ask them which candidate is the best choice. You’ll only get one answer—Richard Ellis.

It’s been a crazy couple of weeks on the campaign trail. That has made it difficult to keep the blog up. Today I would like to let you know my position on certain issues that have come to me in the form of questions from delegates.

The first issue concerns the assertion that I was instrumental in rejecting a $50 million settlement offer by the Workers’ Compensation Fund to the state that would have allowed WCF to privatize. The settlement offer was first presented to Governor Leavitt in 2003, and to Governor Walker in 2004. Both rejected the offer and the efforts to privatize, along with the attorney general, lieutenant governor, auditor, treasurer, and ultimately the legislature, who refused to pass a privatization bill sponsored by Senator Bramble because ALL determined it was not in the best interests of the state to allow WCF to privatize. The reasons are involved, but the bottom line is that it is at best an oversimplification, and at worst a political manipulation of the facts, to assert that I had a leading role in the rejection of the $50 million.

The second issue concerns the assertion that I am opposed to spending limits and revenue earmarks. While it is true, it is again a political manipulation of the facts to assert that, as a result, I am not a fiscal conservative. I am a fiscal conservative. Spending limits and earmarks restrict the ability of the state to adjust to its always-changing needs. What those touting the virtue of spending limits and earmarks do not understand, because they do not have the experience I have with bond-rating agencies, is that bond-rating agencies closely monitor the constitutional and statutory limits placed on the financial flexibility of the state. States like Washington and Oregon, for example, that are otherwise well-managed, will never receive the AAA bond rating like the state of Utah (one of only seven states to enjoy such rating) because they have adopted spending limits and revenue earmarks that limit their flexibility. We elect our legislative representatives to make the tough decisions EACH YEAR on how to allocate resources. Each year the legislature should have the courage and the flexibility to respond to current situations and employ its majority preference for fiscal conservatism.

Finally, let me state outright that I am not opposed to tax cuts as is being represented. What is more important, however, is the lack of understanding of the treasurer’s role that is obvious by my opposition’s focus on this, and the other issues. The legislature and the governor determine tax policy, NOT the state treasurer. While the state treasurer should (and does) provide input, and help educate lawmakers concerning the effects of their policies on the state’s bond rating, the state treasurer ultimately is NOT a lawmaker. It is lamentable that my opposition is attempting to turn this race with misrepresentations on issues that the state treasurer’s office does not, and indeed, cannot, decide.

As your State Treasurer, I will continue to use my expertise in investing public funds and my established relationships with the bond-rating agencies to ensure that the State of Utah maintains its rare AAA bond rating and its position as one of the best financially-managed states in the country. As Deputy State Treasurer, I was an integral part of the team that achieved those accomplishments; I will appreciate your support in allowing me to help maintain them.

I remember last summer when the first concerns about the sub-prime mortgage market were raised. The public was reassured that the damage was “contained” and wouldn’t ripple through to other segments of the capital markets. How wrong that has proven to be.

Now, nearly a year later, issuers of taxable and tax-exempt debt are scrambling to refinance variable rate bonds issued as Auction Rate Securities (ARS). For 20 years issuers have issued long-term debt at short-term rates using ARS. In other words, the bonds might mature in 20 years, but the interest rate paid was based on a 7, 28 or 35 day auction rate. On the remarketing date, the bonds would go through an auction process to establish a new interest rate.

One advantage to this type of variable rate debt is the lack of the need for a liquidity facility. The bonds were issued with bond insurance which guaranteed the payment of principal and interest in the event of default. This saved 15 or 20 basis points (1 basis point = 1/100 of a percent) in fees, which means a lot when the remarketing rates are in the 2 to 3 percent range.

Since February 12, the vast majority of auctions have failed, meaning there was not enough demand from buyers to match the supply from sellers. The result is the seller is stuck with a bond that they don’t want.

So how did we get to this point? The bond insurers expanded their business to insure structured investments that included sub-prime mortgages. As these investments have started to fail, the capital of the bond insurers is consumed covering these losses. This led to the bond rating agencies downgrading the bond insurers because they no longer had sufficient capital to cover their liabilities.

With the bond insurer having a lower rating, investors can no longer legally purchase, or may refuse to purchase, the ARS. The investment banks that remarket the ARS, which have traditionally made a market for ARS securities, have their own capital problems as they are forced to write down billions of dollars of losses. With no one buying, the securities have no liquidity and the seller is left holding the unwanted bond.

This is an over simplification, but reflects the realities of the market. The ARS market, which has thrived for over 20 years, appears to be headed to complete collapse. Ironically, many of the credits backing the ARS securities are very strong, but the buyers are gone. As a result, the municipal bond market is flooded with refinancing or conversions of ARS into fixed rate bonds or other types of variable rate bonds that are more expensive.