SACRAMENTO, Calif. — The Golden 1 Credit Union helped the State of California meet part of its budget shortfall by buying $500 million in "revenue anticipation notes" last week.
Teresa Halleck, president and CEO of the $6.9-billion CU, told Credit Union Journal The Golden 1 will earn 2.2%, "which is a very good rate for a 3-month investment."
"To put it into perspective, today's rate for a three-month U.S. Treasury is only 0.22%," she said.
The RAN require repayment on June 23. Halleck acknowledged the potential exists that California might have to issue a payment form other than cash on that date.
"We recognized that possibility when we entered into these discussions with the State, and are prepared to handle both the State's timely repayment of the RAN in cash or a potential extension which would occur if the State used another instrument - such as a Registered Warrant - as their repayment."
Halleck said California in years past has issued Registered Warrants, which are in effect IOUs, to state workers during budget shortfalls. She said it was "not likely" the State will not have cash on hand on June 23, but added, "It is a scenario that we wanted to consider because we wanted to consider all the alternatives."
The Golden 1 used $100 million in existing liquid funds, which Halleck said represented its deposit inflow from the past month, and it borrowed the remaining $400 million from the Federal Home Loan Bank. Halleck said the CU borrowed at 0.41% from the FHLB, meaning the spread will earn it a positive return over three months of $2.26 million.
"It is a good deal for us and for the State," she assessed. "The 2.2% is a low rate from their perspective. What we will be earning is better than we could get on a Treasury right now, and we aren't giving up loans to do this because loans are hard to come by."
