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The leading voice for excellence in public finance

Thought Leadership Thursday

Lifting Up Our Front-Line Fighters

Robert Sprague

Thought Leadership Thursday Article

Lifting Up Our Front-Line Fighters
April 9, 2020
State Treasurer
Dear Colleagues,

If the COVID-19 pandemic is teaching us anything, it’s to look for the good in the world. I don’t have to tell you how this virus is impacting our states and overall economy – we’re all seeing it first-hand. But in the midst of all this, there is so much good happening. Neighbors helping neighbors, families gathering around the dinner table with no disruptions, and Americans pitching in to support our front-line first responders and health care workers.

Recently, as stewards of Ohio’s Treasury, we stepped in to do our part as the onset of COVID-19 introduced significant market volatility for our state’s hospitals.

As you’re likely aware, large health systems often rely on variable rate demand obligations, or VRDOs, for their short-term debt. However, the financial markets’ response to the virus outbreak presented hospitals with newfound financial stress as interest rates on VRDOs started to rise. Prior to the COVID-19 crisis, interest rates on those bonds were running around 1.3%, but the rates quickly shot up to as high as 8% in recent weeks. This caused a significant cost increase when liquidity was critical to helping hospitals purchase the supplies needed to keep health care workers safe and care for the influx of patients.

Our office closely tracked these VRDO rates and found a way to put Ohio’s balance sheet to work for the hospitals that have been working so hard for us. As part of the State of Ohio’s regular investment portfolio, we began purchasing VRDOs from eligible hospital systems across the state. The Treasurer’s office committed to submit bids for up to $100 million of VRDOs per qualifying institution at a rate of 2% for the remainder of the declared emergency – a significant discount for Ohio’s hospitals. We viewed this as a win-win situation for Ohioans.

First, eligible health systems saw immediate savings and much-needed liquidity. At a time when our hospitals have the weight of the world on their shoulders, we’ve been proud to invest in them so they can focus on what they do best – caring for us and saving lives. Next, this served as a solid investment for taxpayers. Hospital systems have some of the highest credit ratings, and with a 2% return on our investment, we were confident this would be a good return for our balance sheet. Many of Ohio’s largest hospital systems were quick to participate and we’re proud to partner with these cutting-edge organizations.

Fortunately, since launching this effort, VRDO rates appear to have stabilized; however, we will continue to monitor the market to determine if additional purchases are warranted.

If you’re interested in replicating this in your state or hearing more about our experience, we’d be happy to talk with you about our work thus far.

Even in these trying times, there are always silver linings. While we face many uncertainties, what is certain is that we are tapping into the strength of our nation and meeting these challenges with resilience. We’re all in this together, and our country is strong. Thank you for all you’re doing for your communities, your families, and your states.

Robert Sprague
Ohio State Treasurer

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