constitutional amendment 1 missouri 2022, State Treasurer Investment Authority Amendment

Missouri voters took to the polls on November 8, 2022 to decide the fate of Constitutional Amendment 1. The closely-watched ballot measure ultimately went down to defeat, but not before sparking a lively debate across the state. Amendment 1 would have expanded the investment authority of the state treasurer’s office, allowing investments in municipal securities and giving the legislature power to authorize additional options.

Proponents argued the change would boost Missouri’s investment returns, while opponents warned about the risks of loosening restrictions. A lawsuit even challenged the ballot language, ratcheting up tensions around the amendment. Although Amendment 1 was defeated, the issues it raised will likely persist. This article will explore the amendment in-depth, analyzing what it would have done, the arguments made, and its lasting impacts.

What the Amendment Would Have Done

The primary effect of Amendment 1 would have been granting the state treasurer power to invest in highly-rated municipal securities. This represents an expansion of investment options beyond what is currently permitted in Missouri’s constitution. The amendment would have allowed investment specifically in municipal securities with top ratings from national agencies.

Additionally, Amendment 1 authorized the state legislature to pass laws expanding the treasurer’s investment authority even further. While the municipal securities provision was spelled out in the amendment language itself, it left the door open for more opportunities to be defined later by statute. The legislature would have gained power to enact laws permitting “other reasonable and prudent financial instruments and securities.”

So in essence, Amendment 1 created two avenues for expanding state investment powers – municipal securities directly through the constitution, and additional options indirectly through future legislative action.

Path to the Ballot

Amendment 1 originated as House Joint Resolution 35, introduced in the Missouri House on January 7, 2021. On March 11, 2021, the state House passed HJR 35 by an overwhelming 156-1 margin, with five members absent. This nearly unanimous vote reflected significant support among representatives.

The joint resolution then moved to the Missouri State Senate, where it encountered no opposition at all. On May 5, 2021, the Senate approved HJR 35 in a 32-0 vote, with two members absent.

Having cleared both chambers of the legislature with almost unanimous support, HJR 35 was official referred to the November 2022 statewide ballot as Constitutional Amendment 1. This smooth legislative process, devoid of any substantial resistance, allowed the amendment to reach voters without obstacles.

Election Results

When Missourians cast their ballots on November 8, 2022, they narrowly rejected Constitutional Amendment 1. The official results were:

• Yes: 896,279 votes (45.68%)
• No: 1,065,773 votes (54.32%)

Amendment 1 was defeated by a margin of about 169,000 votes out of nearly 2 million ballots cast. The 54% opposed was just enough to block the measure in spite of its legislative momentum.

Notably, support for Amendment 1 generally tracked with party affiliation. It performed well in areas that tend to vote Republican, while opposition was concentrated in Democratic-leaning counties. This dynamic points to some undercurrent of partisan politics, even for a policy issue centered on state investments.

Arguments For and Against

Supporters

Proponents of Amendment 1 primarily focused on the potential for increased investment returns if the state treasurer had more flexibility. By expanding permissible investments beyond just government bonds and CDs, Missouri could earn higher yields. Particularly the ability to invest in highly-rated municipal bonds offered more growth opportunity without compromising safety, supporters contended.

Groups like the Missouri Bankers Association backed the amendment, citing expertise of the state treasurer and oversight from the legislature. They saw it as a prudent way to take advantage of more investment tools allowed in other states. Local government associations also favored the change for the chance to get better rates on bonds sold to the state.

Some supporters considered it a natural incremental extension of existing investment powers. Rather than a major overhaul, they cast Amendment 1 as a small expansion that retained Missouri’s overall conservative fiscal approach.

Opponents

Critics of Amendment 1 focused on the risks of expanding investment authority. While municipals bonds are relatively safe, opponents argued more options inevitably introduce more potential peril. They thought the current restrictions protected taxpayers by limiting investments to the safest classes like government bonds.

State Treasurer Scott Fitzpatrick actually opposed Amendment 1, which was rare public dissent from a Missouri statewide elected official. Fitzpatrick felt the amendment was unnecessary since he already had sufficient investment capabilities. He was concerned loosened restrictions could lead future treasurers to make riskier choices with state money.

Opponents also disliked empowering the legislature to authorize additional investment types beyond municipal bonds. This provision created uncertainty about what exactly the amendment could permit down the road.

Lawsuit Over Ballot Language

State Treasurer Scott Fitzpatrick not only opposed Amendment 1, but he also sued over the wording of the ballot language. Fitzpatrick filed a lawsuit arguing that the ballot title and summary were unfair, insufficient, and misleading to voters.

Specifically, he claimed the language did not adequately convey the breadth of new investment authority given to the legislature. By only emphasizing municipal securities, Fitzpatrick alleged the title obscured the full impacts of Amendment 1.

The lawsuit sought to rewrite the ballot language and was pending as Missourians voted on November 8. However, the defeat of Amendment 1 ultimately made the legal challenge moot. Fitzpatrick dropped the lawsuit soon after the election, saying the voters’ rejection had resolved his concerns.

Current Investment Options

To properly understand Amendment 1, it is important to first know what investment capabilities Missouri’s treasurer currently possesses. Section 15 of Article IV lays out the treasurer’s powers to invest state funds.

The constitution permits the treasurer to invest in the following:

• Federal and agency bonds – These include debt obligations issued by the US government and federal agencies. Examples are Treasury bonds and securities from Fannie Mae or Freddie Mac.
• Time deposits in Missouri banks – This refers to bank CDs and certificates of deposit issued by Missouri banks. The deposits must be FDIC insured.
• Repurchase agreements – These are short-term contracts to buy securities and resell them at a higher price. They are essentially loans collateralized with government bonds.
• Unsecured corporate debt – The treasurer can invest in certain short-term unsecured debt from corporations. The debt must have top ratings from rating agencies.

These options provide safety and liquidity, but limited potential returns. That led supporters to advocate expanding investment authority.

Proposed New Investment Options

Amendment 1 itself authorized two primary new categories of investments:

• Highly-rated municipal securities – The amendment permitted investments specifically in municipal bonds that have top ratings from national agencies. Municipal bonds are debt issued by states, cities, and counties to fund public projects.
• Legislatively authorized options – The amendment also empowered the legislature to pass laws allowing additional types of “reasonable and prudent” investments. This created open-ended potential for further expanding the treasurer’s options by statute.

Proponents viewed highly-rated municipal securities as a fairly incremental and safe expansion of investment powers. But critics worried about the uncertainty of legislatively authorized investments that could reach beyond what voters approved.

Estimated Fiscal Impact

When placed on the ballot, Amendment 1 included an official fiscal note estimating its budgetary impacts. The fiscal note stated:

• The amendment would have no impact on taxes in Missouri. It did not change any tax rates or structures.
• State governmental entities estimated no costs but increased annual interest revenue of $2 million. More investment income would benefit the state budget.
• Local governments estimated no costs but increased annual interest revenue of at least $34,000. More demand for highly-rated municipal bonds would improve interest rates for local bond issuers.

So from a budget standpoint, Amendment 1 appeared likely to produce greater investment income for state and local coffers without requiring any tax hikes. But opponents doubted the projected revenue boosts and argued the fiscal note understated potential risks.

Similar Measures in Other States

Missouri was not alone in considering expanded investment authority for state funds. Over the past decade, a handful of other states have enacted similar policies:

• West Virginia passed a constitutional amendment in 2016 allowing more flexibility for investing state money. Their treasurer can now invest in equities like stocks and other prudent securities.
• The Ohio legislature approved legislation in 2017 granting their treasurer power to invest tax receipts in corporate debt and securities.
• North Dakota voters approved a constitutional amendment in 2010 letting the state invest tax revenues in private equities and corporate bonds.
• Georgia amended its constitution in 2018 to permit the state to invest funds in equities, strengthening investment returns for pension plans.

So while Missouri ultimately rejected the change, other states have pursued similar avenues to increase investment flexibility and returns on taxpayer dollars. The policy remains appealing even if voters here were not quite ready to expand investment powers.

Role of State Treasurer

When evaluating Amendment 1, it is useful to consider the core roles and responsibilities of a state treasurer. As Missouri’s chief financial officer, the treasurer performs several key duties:

• Custodian of state funds
• Receives and deposits all revenues into the treasury
• Manages cashflow and ensures adequate liquidity
• Invests state monies appropriately and profitably
• Oversees bond issuances and payments
• Accounts for spending and maintains records
• Operates state payroll systems
• Administers tax credit programs

Balancing safety, liquidity, and returns on billions in taxpayer funds is an immense responsibility. The treasurer must safeguard principal but also prudently grow investments to support government budgets. Amendment 1 spoke directly to this investment function for Missouri’s treasurer.

More investment authority provides flexibility but also introduces potential risks the treasurer must carefully manage. Voters ultimately decided not to expand powers, but the duties of this vital statewide office remain substantial and complex.

Reactions to Amendment 1

The lead up to voting on Amendment 1 prompted varied reactions across Missouri:

• Municipal groups favored the change, hoping for more demand for local government bonds that could improve their interest costs. The Municipal League of Metro St. Louis supported the amendment.
• On the other hand, the Missouri Association of County Treasurers opposed the amendment due to concerns about risk and a lack of need to change current practices.
• Conservative groups like the Missouri Club for Growth argued Amendment 1 protected taxpayers by allowing more investment return to fund government services without raising taxes.
• Public sector unions raised concerns about the security of pension fund investments and potential market volatility. The Missouri NEA teachers union criticized the proposal.
• Editorial boards split, with some praising more investment flexibility while others warned about exposure to financial markets. The Kansas City Star endorsed the change but the St. Louis Post-Dispatch opposed it.

So reactions covered the spectrum, reflecting the complexities of modifying investment policies even in a fiscally conservative state like Missouri. The eventual defeat speaks to voter uncertainty on the issue.

Future Outlook

Despite its rejection at the polls, Amendment 1 seems likely to resurface in the future. The relatively close margin combined with broader trends suggest expanded investment powers will remain appealing.

For one, Missouri faces challenging budget conditions with underfunded pensions and mediocre revenue growth. The desire to boost investment returns without tax hikes will persist. Demographic changes may also drive demand for higher returns as retirees’ share of the population increases.

The legislature’s lopsided votes to place Amendment 1 on the ballot indicate substantial policymaker interest. And supporters have an obvious argument that legislators can craft a more palatable proposal next time. Some fine-tuning to address critiques may be enough to achieve passage.

Of course, risks like market volatility and local control issues remain. But other states have adopted expanded investment authority, setting a precedent proponents can point to. For these reasons, this issue seems poised for a sequel in Missouri politics despite voters initially closing the book.

Issues Remaining

While Amendment 1 was defeated at the polls, it did not fully resolve the debate over state investment policies in Missouri:

• How much return is the state forfeiting due to restricted investment options compared to private institutional investors? Hard data is lacking.
• What additional investment types would be prudent but still sufficiently safe if added to the approved list? Equities, commodities, derivatives, private equity?
• Can risk management controls adequately protect against market fluctuations even with an expanded investment menu?
• How much latitude should legislators have in authorizing new investments compared to voters deciding via constitutional amendment?
• Are rating agencies appropriately conservative in grading municipal bonds, and could climate change affect those ratings?
• How would expanded investment powers impact efforts to direct more deposits to in-state community banks?

These questions and others will continue to shape discussions around modernizing Missouri’s investment policies. Amendment 1 framed the issue but wider debates regarding how to best leverage taxpayer dollars remain unfinished.

Conclusion

While Constitutional Amendment 1 went down in defeat this November, the close margin of the vote suggests expanded investment authority will likely return to Missouri’s political stage. Amendment 1 offered incremental changes focused on highly-rated municipal bonds but also opened the door for future expansion by the legislature.

Proponents believe a more flexible approach can provide fiscal benefits through greater investment returns without raising taxes. But opponents worry about risk, markets, and reduced oversight of the state treasurer. Other states have been enacting expanded investment powers, setting a precedent to follow.

For now Missouri’s voters have maintained the status quo, acting cautiously regarding this state fiscal policy issue. Yet the underlying budget pressures and alluring promise of higher yields without tax hikes mean expanded investment authority appears to have simply lost the battle rather than the war.

FAQs

What was Constitutional Amendment 1?

Amendment 1 was a proposed change to Missouri’s constitution on the November 2022 ballot that would have allowed the state treasurer to invest in highly-rated municipal securities and authorized the legislature to expand the treasurer’s investment options further through statute.

How did Amendment 1 get on the ballot?

The Missouri legislature approved House Joint Resolution 35 nearly unanimously in 2021, referring the amendment to the statewide ballot.

What were the main arguments made for and against Amendment 1?

Supporters argued it would allow higher investment returns without raising taxes. Opponents warned about market risks and reduced oversight of the treasurer’s investment decisions.

Who opposed Amendment 1?

State Treasurer Scott Fitzpatrick actually opposed the amendment and even sued over the ballot language. Some local government groups, unions, and newspaper editorial boards also recommended a “no” vote.

What is currently permitted for the Missouri treasurer to invest in?

The state constitution allows investing in federal bonds, agency securities, bank time deposits, repurchase agreements, and some highly-rated corporate debt.

Was Amendment 1 approved by Missouri voters?

No, Amendment 1 was narrowly defeated at the ballot box 54% opposed to 46% in favor. But the close margin suggests the issue could return.