More than a third of the state government’s investment portfolio is stuck in illiquid auction-rate securities because markets for the investments remain frozen, state officials said today.

The state Department of Budget and Finance said $975 million of the state’s $2.6 million portfolio is tied up in the investments, but that having the money trapped in auction rate securities isn’t a problem at this time.
The disclosure was made as the Senate Ways and Means Committee and the House Finance Committee held a joint hearing into the state’s use of auction rate securities, a short-term instrument that boasted higher returns than could be found in bank accounts or certificates of deposit.
But the market collapsed in February 2008 as credit markets dried up, trapping billions of dollars of investments. Hawaiçi state government had more than $1 billion invested in auction rate securities while local county governments had more than $40 million.
The legislators were told the state is prepared to hold on to the investments until the mature and that for now they are earning more interest on auction rate securities than they would in 30-day, one-year and two-year investments.