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Q&A with the candidates for state treasurer

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Monday, September 01, 2008

 


TreasurerRace PHOTO ILLUSTRATION BY JON FERLAND

ON THE MONEY

What would these men do if they got their hands on the state’s billions?

By Abraham Hyatt

Outside of state government, Oregon’s state treasurer is not a widely known man. And that, says Randall Edwards, the man himself, is probably how it should be. As head of what amounts to the central bank of Oregon, he says the job should be slightly under the radar.

But within state government the office of treasurer is one of the most powerful. It’s made up of several divisions. The Investment Division manages a portfolio — made up of retirement, insurance and school funds —with a market value of well over $75 billion. The Finance Division serves as the central bank for state agencies and manages more than 13 million financial transactions totaling $120 billion each year. The Debt Management Division oversees all of Oregon’s state-issued debt.

The treasurer also sits on or chairs 10 councils, commissions and boards including the Oregon Investment Council and the powerful State Land Board.

“There is a lot of power behind this office. The pulpit is wide and the credibility is heavy,” says Edwards. The position “is one of the most interesting and powerful jobs that an elected official can hold.”

Edwards is coming to the end of eight years in office; term limits prohibit him from serving a third term. Come November, one of two men will step into his shoes. Both are well known to the state’s business community and have deep roots in the state’s economic fabric. Both are eager to take on the role of the Oregon’s fiduciary steward even as the economy sinks and state revenues threaten to follow.

And while their positions on some of the most critical issues facing the state are different, both Allen Alley and Ben Westlund agree that Oregon’s treasurer should be on the front lines of the state’s next economic battles.

We asked both of them to explain what they would do if Oregon voters hand them the office of treasurer — and a good chunk of the state’s economic future — in November.

Allen Alley

Age: 53

Party: Republican

Current job: Pixelworks board chairman

Previous jobs: deputy chief of staff to Gov. Ted Kulongoski; co-founder and CEO of Pixelworks; venture capitalist, engineer


During his tenure, Treasurer Edwards has been a vocal advocate for specific issues. For instance, he’s spoken very publicly about the kicker being a terrible idea. What role do you think the treasurer should play as an advocate?
I look at the role of treasurer as the CEO of the Bank of Oregon. You have other roles — sitting on the land board — and so you have to have knowledge of issues like taxes and land use. But it’s incumbent on the treasurer to weigh in on problems. This is one of three constitutionally elected offices — that comes with a lot of responsibility.

What kind of advocate would you be when it comes to, for instance, tax reform?
This is my feeling on taxes: Every state I’ve lived in has elements that believe their tax system is broken. To be the architect of a perfect system where everyone says, “This is the right thing” — you’re chasing a difficult place to get to. That said, different systems have weaknesses and strengths. For instance, Oregon has very volatile ups and downs. When you have a system like that and don’t have any reserves to speak of, that’s not prudent.

Other state treasurers in the U.S. have argued for states to divest public funds from companies that do business with terror-designated countries. Divestiture has also come up with Oregon’s College Savings Network. How do you find the balance between your responsibility to create a high return on investment and the idea of socially responsible investing?
I’m going to be on the side of getting the best possible returns for seniors and the citizens of Oregon. You have to have fiduciary responsibility. There may be other options with different trade-offs and returns where individuals can opt in or out, that’s fine. But to start taking money from seniors and other citizens because of a social agenda, I’m not in favor of doing that.

How will you learn to manage an investment portfolio worth at least $75 billion? Who will you turn to for advice?
I was at an Investment Council Meeting this morning listening to the presentations and I started writing down questions that I would be asking if I was sitting up there. I’m someone who’s done this. I’m not an expert but I’m very familiar with the issues.

But are there specific people you’ll need to help with the transition?
There are people on the existing staff and there will be new people to draw upon. The interesting thing about investments and investment portfolio is that it’s getting dramatically more complex. I think the treasury is getting more sophisticated and the role of the treasurer has changed. It’s because the financial markets have become much, much more complicated. You need somebody that has some experience who can ask the right questions and pierce through the fog. If you were actually interviewing for this job you’d have to have a background similar to mine to even be considered.

This year Oregon regained a high credit rating. Part of that was beyond the treasurer’s purview — for instance the creation of a rainy-day fund. But what could you do to ensure that we keep our rate high?
Our credit rating is based on our ability to pay our debts and our ability to pay our debts is based on the money we have in reserve. We could increase that, but we could also look at what we borrow. We overlook that side of the equation. If I can simplify that kind of language I can help the Legislature understand when they’re pushing the edges and when they’re on thin ice.

What scares you most about this job?
I wouldn’t use that word. The more I learn about the job, the more excited I get about it.

Nothing would present a learning curve?
The interesting thing about my background is that it fits so well. There will be a natural progression with lots of things to learn, but it’s not like I don’t understand bonds, or leveraging funds or venture capital. I’ve taken companies public. There are things I need to learn like municipal bond offerings, but I’m very comfortable.

What’s the most critical economic issue facing the state and what can the treasurer’s office do about it?
The first one is that we have to have a vibrant economy. It’s the economy. It’s the economy. It’s the economy. We have some amazing assets statewide that we have to figure out how to responsibly move forward. I’m very bullish on that. The red flag I see is our lack of growth capital. Since 1990 Washington has grown their capital from $90 million to $300 million; California grew from $1.8 billion to $40 billion. We’ve grown from about $100 million to $180 million. If we don’t have the access to capital, we don’t have the opportunity to grow. The treasurer plays an invaluable role in that.

Sen. Ben Westlund

Age: 58

Party: Democratic

Current job: state senator, District 27

Previous jobs: 2006 gubernatorial candidate;

state legislative representative, 1996-2003; business owner


What is the most critical economic issue facing the state and what can the treasurer’s office do about it?
It’s the lack of capital accumulation or formation. It’s access to capital for our innovation economy — clean tech, renewable and sustainable energy, biotech. It’s a real problem. This is a policy question as to how we create access. We’re doing some very innovative things with the Oregon Growth Account, but I will tell you that in 2001 I helped pass a bill for a $100 million investment fund separate from the invest council. There are a variety of reasons that hasn’t happened, but as treasurer one of my most important functions would be to create that kind of capital access.

Other state treasurers in the U.S. have argued for states to divest public funds from companies that do business with terror-designated countries. Divestiture has also come up with Oregon’s College Savings Network. How do you find the balance between your responsibility to create a high return on investment and the idea of socially responsible investing?
Job No. 1 is preserving the hard-earned retirement dollars of our public employees. This fund is upwards of 70 billion; it’s the 22nd-largest fund in the nation, the 41st-largest in world. Let me say it this way: Our investment division isn’t broke and I don’t intend to fix it. It is the critical role of the treasurer to have the steady hand to protect the fund. If you’re going to do something, you must do it very carefully.

How will you learn to manage an investment portfolio worth at least $75 billion? Who will you turn to for advice?
This is the structure: You have the Oregon Investment Division that makes recommendations to the Oregon Investment Council. It’s really the council — of which there are five individuals and the treasurer is one — that ratifies the investment decisions. The treasurer doesn’t sit there and go, “Oh, my gosh, do I buy a million shares of Coke or short a million shares of Pepsi?” That’s what the investment division does and it’s not a casual process they go through. By the time those recommendations get to the investment council, they are very well vetted. Due diligence has been done again and again.

During his tenure, Treasurer Edwards has been a vocal advocate for specific issues. For instance, he’s spoken very publicly about the kicker being a terrible idea. What role do you think the treasurer should play as an advocate?
I see a primary function of this office is as a public policy position to advocate issues that are important to Oregon’s future. That includes tax reform, health care reform, financial literacy in schools — they’re all critical components. Look, all treasurers since 1965 — except for Clay Meyers — have had extensive legislative experience. Having that experience means being able to move policy positions whether it’s to increase our bond rating or increase our rainy-day fund.

What kind of advocate would you be when it comes to, for instance, tax reform?
There’s not going to be reform unless there is the coming together of a broad coalition, every major facet in Oregon. My role would primarily come from working with the constituency outside of the Legislature: big business, small business, health care advocates, education advocates — these are the people in the trenches, the folks that if there’s a change in the tax structure would benefit.

This year Oregon regained a high credit rating. Part of that was beyond the treasurer’s purview — for instance the creation of a rainy-day fund. But what could you do to ensure that we keep our rate high?
I’m not going to buy into the premise of the question. While Oregon’s bond rating has improved, it does not reflect the financial performance of the state. We’ve done a dramatic movement in terms of our debt-to-revenue ratio. One of the things that holds us back is lack of a meaningful rainy-day fund. It is nowhere near adequate. We need 10% of the prior biennium’s appropriation to be in the rainy-day fund for us to have anywhere near an adequate reserve. That’s not only for our public services that rely on that fund but for the bond underwriters.

What scares you most about this job?
Any treasurer’s fear is a worsening national economy. That impacts every aspect of the job — it puts more demands on the investment division, it reduces available capital for our Oregon growth account, for Oregon Innovation, for economic development. What it really does is it raises the cost of government. I’ve seen this before. I helped Randall get through it when he first assumed office and I was the co-chair of the budget-writing Ways and Means Committee. We worked closely together right in the midst of the worst recession in this state’s history when revenues fell further and faster than any state in the nation. You ask what I fear — it was tough.

In that situation, whom does a treasurer turn to for help?
No. 1, it’s the exceptional management that the office already has in place. No. 2, a treasurer’s best friends are the principles, prudence and discipline you learned in your own businesses. I’ve known the highs and lows of business for 30 years and it’s not new to me.




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