Saturday, July 01, 2006

So Where Is The $3.8 Billion?

Last Thursday the Indiana Finance Authority (IFA) accepted wire transfers totalling $3.8 billion as an upfront payment from the privator consortium that is leasing the Indiana Toll Road. So where is that $3.8 billion sitting right now. The South Bend Tribune's Martin DeAgostino answers that question today.

The money IFA received was deposited in an account at the Indianapolis branch of JP Morgan Chase/Bank One, an out-of-state bank. It is already earning $518,000 a day in interest. D'Agostino reports that IFA will transfer the money to State Treasurer Tim Berry on Wednesday. IFA will, however, deduct from the amount bills that it has already incurred. That includes $198 million to retire Toll Road bonds and $24 million in broker and legal fees. So IFA will actually be transferring about $3.6 billion to Berry.

Berry is still awaiting responses from a solicitation to manage the funds, but he will immediately invest the money. Berry says he will use short-term instruments available to the state, including bank certificates of deposit and U.S. Treasury notes and other federally backed securities. How much will the banks earn in fees from managing the state's money? Berry's solicitation does not specify fees, but DeAgostino's story predicts the fees will range from .25 percent to 1.5 percent. Berry told DeAgostino that "the final mix will involve instruments of longer maturity than is typical with state investments, and a greater variety of instruments."

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