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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowHigh-tech leaders eager for money for venture capital investments have set their sights on a new potential source: Indiana’s $308 million Public Deposit Insurance Fund.
It’s an idea sure to draw adamant opposition. Take Indiana Bankers Association CEO Jim Cousins’ reaction:
“Over my dead body,” he said. “That fund exists to insure deposits. Any deviation from that, we will fight like banshees to oppose.”
Formed in 1937, in the wake of the Great Depression, the PDIF insures deposits of public money in Indiana banks, much as the Federal Deposit Insurance Corp. safeguards individuals’ deposits.
The state treasurer handles PDIF’s day-to-day management. The fund is overseen by the state’s Board for Depositories, which Gov. Mitch Daniels chairs.
Techpoint, a trade organization that lobbies on behalf of more than 330 of Indiana’s high-tech firms,
tucked the concept of tapping the PDIF into its 2007 public policy agenda.
Techpoint’s lawyer Mark Shublak, an Ice Miller associate, said the idea was developed with the help of local venture capitalists and investment bankers.
“There’s not been a run on Indiana banks for 50 years at least,” Shublak said. “And I think the General Assembly has recognized that this money has been used in the past for other purposes.”
Similar arguments led the managers of Indiana’s largest pensions, the Public Employees’ Retirement Fund and the Indiana State Teachers’ Retirement Fund, to diversify more aggressively into venture capital on Daniels’ watch.
A big difference this time around is the idea does not have the backing of the governor’s administration.
“We probably get a request a week to go in and loot the money in that fund,” said State Budget Director Chuck Schalliol, who rebuffs such overtures.
“The money is there for a specific purpose; in the event of a catastrophe that wouldn’t be covered by the federal government, we have this money in place.”
The PDIF’s $308 million currently is invested in extremely safe instruments, such as Treasury bonds. The goal is to preserve the PDIF’s value against inflation. Any investment gains are used to help shore up police and fire pensions. Since 2001, $52 million in PDIF interest has been distributed to 129 Indiana communities for that purpose.
As an insurance fund, PDIF can’t afford riskier investments, Cousins said. That’s because, by law, it must always hold enough assets to repay public deposits if a bank should fail. The state’s banks would have to step in to cover any shortfall.
“They’re proposing driving a nail in the bottom of the bucket,” Cousins said. “Who’s putting the money back in the top to keep it full? Not taxpayers. Not the high-tech business community. Just the banks.”
It’s not clear how many years have passed since PDIF was tapped to bail out a failed bank. Outgoing State Treasurer
Tim Berry did not respond to IBJ’s request for comment on the insurance fund.
Techpoint argues Indiana could accomplish far more with the PDIF. Hypothetically, the money could stimulate the state’s economy by underwriting the development of fast-growing local businesses. And successful companies would ultimately provide more business for Indiana’s banks.
To free the PDIF’s principal for any sort of new investment, Indiana would first need to find another way to insure public deposits.
Congress occasionally has considered extending FDIC’s blanket, Cousins said, but the effort has never gained enough traction to become law.
He thinks Congress’ doing so is a long shot, but Shublak thinks federal lawmakers might revisit the issue soon.
“It’s a debate about where the money goes after there are means at the congressional level to cover this activity,” Shublak said. “We’re having discussions with legislators currently to get their feedback on how much of the money could be dedicated to new ventures in the state of Indiana.”
Over the years, Indiana lawmakers and others have eyed PDIF funds for a variety of uses, including to shore up the state budget, said Christopher Murphy, CEO of South Bend-based First Source Bank and a member of the Indiana Board for Depositories.
“Everybody in the world wants to tap the fund. But once you open it up, it’ll go to other places,” he said. “I think it’s stupid as hell. Everybody says it’s easier than getting something through the Legislature for new money. But it’s ill-advised in my opinion.”
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