Posted: April 19, 2011


By Celia Cohen
Grapevine Political Writer

After not even four months as the treasurer, Chip Flowers has involved himself in a power struggle over control of state money.

The field of battle is an obscure panel called the Cash Management Policy Board. Its obscurity speaks to the meritorious work it has done, prudently overseeing the investment of billions of state dollars since it was formed in the early 1980s.

If the board had faltered, it would not be obscure but rather a household name, something like Lehman Brothers or Bernie Madoff or possibly even Billy the Kid.

Flowers, a Democrat elected to a four-year term last year, is a member of the board, but he is only one member. There are eight others.

Finance Secretary Tom Cook and Secretary of State Jeff Bullock represent the interests of Jack Markell, the Democratic governor. Russ Larson, the controller general, is the finance officer for the General Assembly. The rest of the members are investment professionals, with probably the best-known being David Marvin, who once managed the pension fund of the DuPont Co.

Flowers has a plan to carve out $200 million of the state's investment money for a Small Business Economic Recovery Program, which would be run by the treasurer's office.

He wants to put the money in local banks in non-interest bearing accounts, FDIC protected. The money would never leave the banks but would free up other money for small business loans. The banks would pay fees to the state to make up for the lost investment income. The treasurer's office would decide what to do with the fees.

The Cash Management Policy Board takes its stewardship of Delaware's money very seriously. It is resistant to ceding control to anyone, even the state treasurer.

It could be argued the board was created for just this sort of moment. One of those present at the creation was Glenn Kenton, the secretary of state for Pete du Pont, the Republican governor from 1977 to 1985.

"The whole purpose of the Cash Management Board was to keep the state treasurer from having the discretion to pass out state monies to friends and supporters and other organizations. At the time we passed this, several state treasurers [elsewhere] had gone to prison and have since for hanky-panky in their placement of state monies," Kenton said in an interview.

"We thought it was time to take away the temptation. This is just outrageous. State money is not a grant-in-aid bill. It's not a slush fund for the state treasurer."

The showdown between the treasurer and the rest of the board came Tuesday morning at a meeting in Dover.

It was immediately clear the session would be contentious. The board could not even agree to approve the minutes of its previous meeting. Flowers had drawn them up. Bullock, the secretary of state, suggested they did not reflect the heat of a discussion that took place then about Flowers' plan. The minutes were set aside.

Flowers' proposal simply was not in the board's DNA.

"We have a responsibility, a fiduciary responsibility, for the cash of the state," said John Flynn, the board chair who was a management consultant, now retired, and the chief operating officer for Wilmington in the 1970s.

"I don't have a problem with the concept of the program itself. What I have a problem with is, this program is economic development, and it is not the Cash Management Board's responsibility for economic development."

There was also a legal question about the fees that Flowers wanted to charge the banks. Fees are supposed to be the prerogative of the legislature, imposed by a three-fifths vote with the concurrence of the governor. Legislators are not known for power sharing.

"Think of my world," said Larson, the controller general.

Flowers could not figure out what the fuss was about. "We are opening up basic checking accounts," he said. "You're saying we need legislation to open up basic checking accounts."

The rest of the board stood like a stone wall. "I am very concerned about the program. You seem to have put the cart before the cart before the cart, and the horse isn't even born yet," said Mike Karia, a member who was the finance director for Dover.

"This is not the opening of a bank account. It is more."

There did not appear to be a vote for Flowers' proposal beyond his own. He gave in and withdrew it, although not without a parting comment that suggested this was not necessarily the end of his plan.

"Whether I actually have the authority unilaterally, that's a separate issue," Flowers said.

Elio Battista Jr., a deputy attorney general who advises the board, warned of potential consequences if Flowers moved forward without legislative approval. "If you try to work around it, legislation can be introduced to stop it," he said.

Flowers could find himself arrayed against the General Assembly, the attorney general and the Markell administration. "He has to work within his statutory authority. If he wants to change the law, he has every right to do that, but not through some creative interpretation," Bullock said.

Flowers campaigned on a platform of restoring economic prosperity. This is $200 million he is talking about. A logical approach would be to go to the General Assembly, not to a state board that does its best work in obscurity.