Steven Johnson podcast

    5:06PM Jun 11, 2023

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    Welcome to the Kansas reflector Podcast. I'm Tim carpenter today Steven Johnson, the former Kansas House member from central part of the state, who was elected to statewide office in November is with us to explore the politics and intrigue of serving as Kansas State Treasurer. Mr. Johnson's political career got off the ground while serving as student body president at Kansas State University. He launched a career in business finance, before pivoting in 2010, to a seat in the legislature serving on the House tax pensions budget and agriculture committees. While he serves as a state's banker, so to speak, hopefully someone is taking care of the wheat beans and corn back in Syria. Mr. Treasurer, thanks for joining us.

    Good to be with you.

    Thank you. Thanks for being here and taking time out of your day. So you were elected, you know, five, six months ago, well, elected in November, but you've been serving since January. So what's what's it like being state treasurer,

    it has been a busy time. So we've had a lot that we can do, which is fortunate. The state of the state's finances have been good. So we've had good things to be able to do the interest rates, perhaps higher than they should be, in my opinion, and others, but gives us a lot that we can work on in the State Treasurer's Office, blessed with a good staff that has been there on the professional side running the office and great people who have joined me to make sure we get our work done.

    So the transition wasn't terribly difficult because of the people that are were there before. I mean, institutional knowledge correct. So

    a lot of institutional knowledge that was there can call out each of the areas, people who've worked on unclaimed property, people who have worked in IT people who have worked in the fiscal services, this division, the partners we have outside of the office all have been exceedingly helpful.

    Okay, good. So part of your job is to look after the state's cash assets. So, if if the projections are correct, Kansas, by the time the legislature comes back next year, could have as much as $3 billion dollars in the bank of Kansas. And that would be in a rainy day fund plus just in the you know, the cash reserves, which is a good thing. If you're a legislator, the or a state government official, the worst thing to do is be around when they're cutting spending, rather than spending more or having money to spend so so what kind of steps is your office taking to what's your role with dealing with that 3 billion.

    So there's a fund called the Pooled Money fund. And the Pooled Money Investment Board handles those dollars, it's the essentially the float for the state. And the 3 billion number is looking at what the ending balance could be, that's left after we pay bills. But in addition to that, there's the money that comes in that we use to pay the bills with. And in managing that through the calendar year, we should make just over 300 million in interest on the float as it passes through our hands. So it has been even more important this year than a year ago or at other times to pay attention to where that money is sitting. And what it can do for the state. One of the first things that we happen to see in January, was just what was in the checking account and will to what is that applied? And do we need to have that amount, we invest in the overnight rate, a lot of dollars right now about 2 billion is just going into the overnight rate where we get 5%. Another if you look at a balance around 100 million, if you can get 5% at night, you want to pick up that coupon. So in our bank has been a great partner to work with, we let them know, we want to find something where that can be productively applied for the state. They helped us with a couple of

    things to interject there. The idea is to do short term investments very short term, so that you don't interrupt the cash flow that goes out on a daily basis to pay the bills and obligations of state government. That's

    exactly right. So on the cash piece, and if you talk to bankers or others, there's a simple acronym called sly, which is first stability, second, liquidity, and third yield. And while we all get excited about the yield, we have to make sure that there's collateralization, no risk to losing those assets that there are other things upon which we can rely, as you just mentioned, the liquidity then is the next Paramount thing. We need to make sure that it's available. So generally this is money that we're looking at using within the year, right. So it's coming in, it's meant to meet that budget. And then the yield is one other thing we look at with the inversion of the yield curve. It's actually paid us to be on the short end which is nice as well. will have to work a little harder as that yield curve normalizes and we get a better picture

    and that hypothetically that 5% rate drops to four something like that or two months go by correct,

    not something I for the benefit of all of us, I hope that it follows more quickly. But for the value to the state that rates been great.

    Right. So conflicting interests, perhaps, to some degree. So just to put your economist hat on for a second, what's your sense of the status of the Kansas economy? I think unemployment rate has been relatively stable. And I don't know if we're considered at full employment or not. But what about that?

    Yeah, so the unemployment has been good nationally, it's been good in Kansas jobs are available, when we're able to be in the 3% unemployment rate. That's good news. And that means the economy is generally working, it doesn't mean that there are things we could do better doesn't mean that there aren't good people who don't have the right job. But as on the whole, we're able to be productive. And as long as we can have that measure, we can weather a lot of the other storms, the productivity will come in the dollars will be turning over in the economy will feel that in our communities, we see people continue to spend from the state perspective that drives the tax revenues and keeps us on target to the projections

    and to take one step further afield from your real job. Do I think you hinted that perhaps the Fed moved in maybe in a slightly more aggressive manner than you would have done?

    Yes, on interest rates. The I think we stayed too low, too long, allowing inflation, I think we had some policies that were very inflationary. And I think trying to fight them at a point in time can be really hard on the banking sector on others, as we're seeing with a liquidity crisis is that created for banks to try to work through so I might have preferred, starting a little quicker and just doing it over a longer period of time than the speed with which it was was happening. I feel like we have gotten to that point where we needed to arrive, I know Canada's signaled another quarter point rise, I don't know if we'll have another quarter point rise. I'm glad that we took at least a little breather to let things settle down and be able to get some some of those maturities all the way through so that bank balance sheets and other things can work a little better.

    Because I've looked at the State Treasurer's office over the last 20 something years, whatever. I've kind of viewed it as you know, it's a partisan election, you're a Republican. But I think the work assignments of it are you're working on the best interests of the state. So largely, it's been nonpartisan, non kind of non political. But the state legislature in this past session, there was a bill out there that would have had the state treasurer administer or manage some state funding, that perhaps they're called Educational Savings accounts. I'm not sure the exact terminology that would have gone to students and private schools. That bill did not survive the legislative process. But what did you think about that kind of proposal and handing that responsibility to you?

    So working through the education savings accounts, there's a lot of good discussion that happened there, there may be some solutions that can allow parents choice that can work and still work with the budget. Our role is to implement it. So if the legislature works through it, or at least it was proposed in that case, as you said, it could have gone to other places as well wouldn't necessarily have had to go to the treasurer's office. But do you do it there? Do you do it in the Department of Education? I think the legislature's discussion was they maybe did not want to go to the Department of Education, and they might be able to explain those thoughts better than I. And we then would seek the same types of vendors that would be able to handle those payments and make that work, as directed by whatever bill would pass the

    presumption is that if they had handed you that responsibility, you would have sought a vendor to handle that day to day because perhaps you're not staff to do that

    we would not have the staff to handle that, as is I think that was part of the fiscal note was looking at what is it take to be able to implement that

    we're talking 10s of millions, maybe hundreds of millions of dollars, and you're you're having individual transactions made by people, individuals who are going to school and have access to those accounts. I mean, that's, that's a pretty big accounting lift,

    there's, there would be a fair amount of accounting, keeping those balances straight, knowing what is a qualified expense. All those pieces need to be put together. And again, there are other states that are doing that

    not necessarily reinventing the wheel,

    we can learn what hasn't worked well, before stepping into that and what is working and would just try and step into that as best we could.

    There's another piece that the legislature got you involved then it's more of a procurement thing as well, I believe that I believe you're supposed to handle the request for proposals from people interested in the contract that would handle a couple million bucks, and state money for adoption assistance, and perhaps helping women to complete a pregnancy and the like, this gets you very close to the anti abortion issue, which is not traditionally something the state treasurer has been involved in, believe you're going to do this, you're going to be responsible for this. But how do you feel about that?

    So again, glad to help the legislature with that the alternatives to abortion bill that they passed was to again do just that the alternatives to abortion, you're right, it's exactly 2 million. They were looking for someone who could implement that our role is the RFP process requests for proposals. So again, a wrote state mandated process of how we choose a vendor that would actually implement that strategy. So

    typically, maybe the Department of Administration in Kansas or ministration, might have handled something like that perhaps could have been, the alternative was was to have you all right. So any sense of is there a finger on the scale that's going to give the contract to Kansans for life, the anti abortion lobbying organization,

    so there is not and as we worked through that, one of the things that we tried to vet with the legislature is exactly what are you wanting? And what are the measures for success? How do we lay that out? So that anyone who might apply would know and in that, there, there were no names given to say, Oh, this is the entity which we think is just ready to go? No

    preferred applicant, right? All right, another piece of your job, you're on the capers Board of Trustees, correct by virtue of being state treasurer, right. So there's been a lot of hubbub about ESG, which is, I'll try to explain it here environmental, social and governance metrics that some advocates want to use to influence the conduct of private businesses and state governments, including pension funds. And so there's some ESG language that requires capers, I believe, the Kansas public employment Retirement System to seek the highest possible return on investment, lowest risk, but but to but to focus on their fiduciary responsibility, rather than wading into environmental or social issues as they go about that, which some companies do enthusiastically. So explain a little bit more about how this is going to work and why this is important for capers.

    So that's exactly as you laid it out, that is ESG on those measures, and potentially even further afield, but focused on environmental, social and governance. How might some entities control policy or direction through investment capital, and something that I'd say had traditionally been reserved to the policy, when we make policy to regulate to do whatever it is to achieve a policy objective? So these efforts through either corporate board elections, or corporate measures, or just other requirements that could be there, were set up to say, Well, okay, if we can't achieve it this way, we'll just try and make the invested capital, achieve that objective. So maybe

    an advocate for an environmental cause can't get that accomplished through the legislative process or the regulatory process, they would just go and maybe apply these ESG principles to try to pressure companies try to conform to their ideals,

    right. So the the poster case for it, either side, it's not. One of the things that was done was engine number ones effort to elect green energy advocates to the board of Exxon Mobil, the largest US oil company, and they were successful. Two years ago, they elected three out of four board members to Exxon Mobil's board, Exxon Mobil had tried to work with them in the process and said, well, we'll put one on ourselves and one of 12 They said, that's not enough. So with that one, and they're three, they got four, they need six to get control of the board. So that was a direction that was going to say, okay, rather than deploying your several 100 million of capital towards your core competence, fossil fuels, we're going to have you be in the energy business, but you're going to do green energy suddenly love solar panels, right or some how might that work together? either. And so the question that I would have from the fiduciary side and my oversight is to say, is that the most efficient way to deploy that capital? Will there still be a need for fossil fuels in the next decade? Realistically, is there a way through investment to make that better, faster, cleaner, cheaper? How does all of that play out and given in the case of capers, we invest passively in the US stock market, we own the Russell 3000. We're not trying to pick a companies or have a manager that picks companies we buy the index, in that we own Exxon. If the strategy works great, we all win. If it doesn't work, the future of Exxon is damaged. As an index investor, I continue to hold that until such time it exits the index, which is a really rotten strategy for me, right. So I just wanted to be careful that we aren't working against ourselves in voting proxy shares in this particular case, in something that might not be in the best interest of the pensioners.

    So it's a public policy, the state legislature and the governor, let this become law, I guess, wants to send a message to capers to keep your eye on the ball, keep your eye on the investment return of that very important retirement system. For public employees all over the state. Hundreds of 1000s of people write basically it and don't get mangled tangled up in all this political stuff.

    Well, for capers, it was on the proxy voting and it was very much on the contracting, it was just that it says pro or con, it's not going to be what we use to decide contracts. I'm not going to say because you do it, I'm not going to use you, I'm not going to say I'm not going to use you unless you do it. Have you got the best option for the state? If so, that's where we are Professor Johnson,

    I'm going to give you an assignment one on one in his brief and as clear manner as you can, what's proxy voting.

    So great, I was talking about proxy voting, and now all get a chance to actually make people or give them a chance to you have slim or in your island, you've been waiting for me to ask you. So proxy voting in the corporate governance world, the annual meetings are driven by Democratic vote, if you will, typically one shareholder has one vote, and you vote your shares for whatever the measures are before the corporation. So one of those members, as we were mentioning in the Exxon case is for board of directors. So you vote for those. It can also be for things as exciting as ratifying the auditor that you're going to use that you're which is one of the items voted on every year by every corporate board. And then they can go further afield. There's been the concept of stakeholder and shareholder activism that was promoted by some money managers where you might get some other proposals directly or tangentially related to the company that are brought to be voted on those measures, then each shareholder votes and accordance with their ownership stake in the company.

    And so capers is a shareholder in a bunch of companies by 1000s and 1000s of companies and they share it realistically go and make all these proxy vote all these votes on those issues. So they they hire a proxy voter, right, there's somebody to go in and deal with all that minutia.

    So let's the proxy one, right, exactly one route is to let your money manager vote the proxy, and historically, that had often been the case. So mutual fund managers, those who have ETF shares, they collect all of these and may vote them on behalf of their shareholders, their owners. And this then said, we want to be sure, it's a little challenging to figure out where is every money manager, so one route is okay, we want you to pick the good money managers. Well, that's subjective, and difficult and changing, where our real issue with being passive in the US wasn't in selecting where to invest, it was merely looking at these corporate governance issues and where they went to the activist role versus the maximize return role.

    Okay, so for all the people that are traumatized about having to think about proxy voting, let's move on to we're through with let's roll on to the unclaimed property system, which is part of the State Treasurer's Office. And this is where if you left money and in a safety deposit box or something like that, or the you had a reimbursement check of some kind and that didn't get to where it needed to be the person involved in it could end up in your office. And so that's the unclaimed property and you try to connect people to that property, which is can be a real challenge, because you have hundreds of millions of dollars of

    property, we do a little over $500 million, that we would love to return to the rightful owner. So you have,

    are there any new features there related to that you can go online and see if you can go holding property, which is

    a great thing to do. Go to Kansas cache.ks.gov. The first icon will be unclaimed property, click on that, put in last name, first name, it is a new system that you can search but where a lot of times people will hit that. If there's a maiden name, put that in the if somehow we got disconnected in that point. First unclaimed property can often be in college, we were talking about our college days earlier when someone moves from that address, and there was a utility deposit. And now they can't find that student and it's on the books. So if there's an address change, all of those things are good, good times to stay in touch every couple of years to see what types of things might come up. So the system change that we mentioned in terms of what changed the effort to get it back is not a new effort. That's one that the state has been working on for several decades. But we did go to a system that is a national vendor, we had programmed it ourselves in the treasurer's office, they've done a great job with that. That the ability to go with the federal vendor does a few things for us, as security issues continue to be a challenge. Having somebody that's dealing with that going forward, as hiring staff to do it work becomes a challenge having having less dependence on the ability and the demand we have on talent and resources here. As we partner with other states. There are several states in this system, it's easier to find those monies that are in another state that are unclaimed for for someone that's here. So trying to work together with that, but it's been a big challenge for the staff to work through the change in that system and try and keep service consistent. So this is outsourced for

    the first time this unclaimed property. And do you think just to close that out the idea of fraud prevention, that you think the aspects of that will be improved.

    I think we've done an exceptional job on it so far. However, the the the threat going forward, people seem to be getting ever more creative in their challenges to systems and being able to segment that one in its own group and have somebody watching from a number of areas could be a potential benefit for us. We did flag a fraud case right out of the gate that might not have been caught in our system. It's interesting. You don't always know when you haven't run it completely through. But

    is this the African king who just wants to get his loot, I don't

    know from where that particular one came. But getting the word out is the key. And we were really fortunate. I think February 1 is unclaimed property day. And our communications manager did a press release and web W picked it up, came to the office and did a quick interview. So our partners in the press are key. We went from 62 claims a day to 985 That day, just letting people know and it slowly has ebbed back down. But it was that network where they brought it out some partner stations pick that up. We were just incredible from that so many more people just went on and check the site and found their money.

    So journalists are relevant

    is a great help. And we look forward to working with people anywhere where we can get the information out that people need across Kansas.

    One other piece of your office that was there been there for many years is the I think it's called the 529 program. It's a college savings program. So what is it? Is there any update there?

    So that continues to evolve as well. So now we'd say College and Career Training Oh program. There's so many things for which it can be used as education continues to evolve. The needs, how do we specialize? So as you look to what career Do you want to follow? How do you open that door? If I would have gone to diesel mechanic school, I could have used it to buy the tools that I needed to get started that were required as well as the tuition and costs that were there. So the planning opportunities, I think continued to expand as we look at the need that is there. Another thing that's continued to change just in this last year, Congress passed a bill that changed and allows leftover dollars in the 529 plan to be converted to a Roth IRA, which makes it a more powerful planning tool. So here I can say okay, I got a plan. I've got it educate patient, it's tax free, and I get my state tax deduction, great. But if I don't use 35,000 of that for education, I get to convert it to a Roth. And now I get my state income tax deduction on what became a Roth contribution. And I get those dollars tax free. Well, that's a good deal. It is a great deal. So the flexibility that is there to plan across goals. And so I think Congress further work on that, to continue to give people flexibility to take their best effort at planning, and give them some additional wins after

    any, any idea what the balances and the 529 accounts.

    So overall assets in learning quest are about $9 billion. So that's incredible. That's huge. It's a significant amount. That's the Kansas part of learning quest. So that is the overall part of learning quest. So there is a Charles Schwab entity that is sold nationwide, that is our largest one American century has an Advisor Platform. And it Yeah, I see. So how much of that is Kansas? How much is not? Anyway, the amount? Yeah.

    So before we go, I just want to ask you some general generic political questions. But I'm curious about political people and the evolution of thought their personal evolution of thought. And maybe you have some ideas about government that are different than a decade ago, when plus when you came to the legislature. So do you think that's the case? Do you think most people tend to grow and evolve in their political philosophy? Or are people pretty rigid?

    So I think in most professions, there's an opportunity to grow and evolve and what you know, how things work, how to get things done. And just as you gain greater perspective, I've learned so much more about the state budget. And I still have a lot to learn. So trying to put all of that together, I think does matter, changing. You know, the core values, I think, tend to be more consistent as folks work through those processes. But very definitely the information that I would have, if I were to sit down with a budget from 2011, now would just be meaningfully different than when I was lucky enough to first walk in the door.

    There's a huge learning curve plus all kinds of things change technology, for example,

    all of those things change that are there, learning how things get done was also you get sometimes we joked about the Schoolhouse Rock version of passing a bill. And I think the joke might be on us in terms of how things can actually become law as you get to the conference committee process. And for better or worse, late in the game, we need to make sure we consider the acts, how do we make sure that that's addressed? Before we adjourn for the year,

    you think your years in the Kansas house, working on committees, working on bills of all kinds helps you in the State Treasurer's Office?

    Without a doubt, I can't imagine coming in cold without the knowledge of the cash flow from the appropriations and tax committees, some understanding of the liability of the pension before going on to the Pension Board. All of those were so helpful to be able and then in looking at, okay, what are our statutory requirements? What ones now might we want to come back next year and say, do we adjust this on this particular loan program from the bank to get better usage, or better meet what we think was your objective? One of the great things we have in Kansas on the 529 program is the kids program, which will match up to $600 of a contribution into a 529 plan for people at 200% of poverty level or below. So for a family of four, that'd be a level of income of 60,000. Well, as it would turn out, one of the legislators that was engaged in that when it was passed was a Representative Ed O'Malley, who's now gone through the leadership center in Wichita and his back working with I believe, the Health Foundation, and said, you know, what, what did we really want to achieve? And can we now take a look back and say, are we achieving it? And be Are there ways to achieve it better, so that if we want to scale that we could do it a little differently and be able to handle more than the number that are currently authorized and maybe broaden eligibility? So studying what we do then gives us a chance to figure out how to do it better. I think it's important for

    one final question, just as from your, you know, asteria remind people where that is

    right in the middle of the state, very roughly the middle of the state, just, yeah,

    it's a suburb of sign. I will say it could be anyway, politically, do you You think the the the gap the policy, the perspective gap between urban and rural legislators is widening? Do you think,

    you know, I don't know if I have enough perspective to know if it is widening, in that I know it's been a concern for a long period of time. I did find my fellow legislators always strove to understand the other side on the urban rural piece, even though we bring our knowledge to that many participate in a conference called the meet in the middle Conference, which lenzburg will be hosting on the 22nd of June this year, that a number of people here in Topeka helped put together and that was a great place to come together over those issues. It's done every other year, I forget if this is the I think this is the fourth one that will be done. But it was meant to address that. And I found that people were at least willing to talk about it.

    I just think sometimes getting you know, an urban legislator from say, Johnson County thinks about water, they're thinking about the tap, what's coming out of the tap. But for somebody irrigating crops, in an arid, more arid part of the state is thinking about water differently. And kind of blending that together just seems some sometimes evens public education, you know, just sometimes ships passing in the night.

    It can be and water then becomes even a regional issue between an irrigation in one area and another is very different and how that

    we're neighbors neighbor.

    So but but I think there has been a willingness to talk about that it is one where we're all in this together, I think for better and the agricultural part and component of our state. And the value add that we have up the chain and our cities, I think is something that has a lot of value for us. And I found a lot of times folks consider that a lot of our leaders in urban areas were from rural areas, and found that was also helpful. Not that communication on any issue is perfect.

    I think we're gonna leave it there. I want to thank Stephen Johnson, the Kansas State Treasurer, newly minted earlier this year. I want to thank you for taking time and sharing some of your views on these issues.

    Thank you. Good to be with everyone and the listeners. Thank you