Lack of sunshine, too much politics and a tendency to believe we’ll be the ones to beat the markets have led Pennsylvania’s Treasury Department down some thorny paths in recent years. Treasurer Joe Torsella thinks steps he’s taken in the first few months in office could change that.
Torsella, who took office in January, believes the state should learn from his predecessors’ alleged wrongdoings.
Just last week, a judge threw out a case against investment adviser Richard Ireland, whom officials accused of offering bribes in return for treasury contracts. In 2015, one former treasurer, Rob McCord, pleaded guilty to extortion. This coming June, another former treasurer, Barbara Hafer,will face trial for allegedly lying to investigators during a corruption probe.
Torsella hopes to curtail practices that opened the door to these kinds of scandals, in addition to increasing transparency around how his department invests its $17 billion under management, he said during a March 13 interview.
As one of his first acts in office, Torsella ended the Treasury’s use of placement agents. The agents are paid, like Ireland was, to introduce money managers to public institutions.
“What we know is that the practice of placement agents has been intimately connected with public corruption scandals. What we know is that those fees should stay in the taxpayer’s pocket or the beneficiary’s pocket. What we know is that placement agents are actually associated with underperformance of investments,” Torsella said.
Although several states have adopted similar bans, Torsella’s was not without critics. Some people have argued the agents don’t actually cost the state any money – an idea with which Torsella firmly disagrees – while others have said the ban came too late to make any real difference to Pennsylvania’s corruption woes.
More than three months after implementing the ban, Torsella still feels confident it was a necessary change in how the Treasury does business. He hopes the state’s pension funds, which still allow placement agents, will follow the Treasury’s lead.
“There was a time when maybe treasuries around the country were less professionally run, and the who you knew mattered more,” he said. “This is an artifact of that time.”
Torsella has also focused on giving the public a window into Treasury operations in his first few months in office, overseeing the launch of an interactive website that shows the state’s general funds balance in real time. He hopes it will be the first in a series of transparency initiatives that make the department’s operations easier to understand and, by extension, less susceptible to scandals.
Torsella believes the Treasury also has room to improve when it comes to how it invests taxpayers’ money.
“I think we need a longer, harder look at what we’re paying on investment fees in Pennsylvania and how complex some of our investment practices are,” he said. “The idea that we’re going to sort of beat the markets in the long run is crazy. The idea that we can somehow magically do better than everyone else on a consistent basis is crazy.”
Torsella cites Pennsylvania’s recent purchase of $11.8 million in Israel Bonds as an example of a prudent investment. The bonds, which Pennsylvania’s treasurers have invested in since 1993, have higher-than-market-rate returns and a good history of repayment, Torsella said. They also help boost the Israeli economy, a cause he believes many in the commonwealth can appreciate.
Torsella also hopes to increase the treasury’s focus on helping Pennsylvanians manage their personal finances. Monday, for example, the department unveiled the launch of PA ABLE accounts, a tax-free vehicle in which residents with certain disabilities and their families can save for disability-related expenses.
“When our citizens our financially healthy, then we are financially healthy,” Torsella said.