Politics

State plugs drain on fund

Jittery governments' withdrawals threatened to deplete the pool.

By STEVE BOUSQUET, SCOTT BARANCIK and WILL VAN SANT, Times Staff Writers
Published November 30, 2007

TALLAHASSEE - Fearful local governments removed another $3.7-billion Thursday from a troubled state-run investment pool, causing Gov. Charlie Crist and other state leaders to pause the run on deposits by temporarily suspending withdrawals.

"Let's stop the bleeding," Crist said.

Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum voted unanimously to halt withdrawals from the fund - a sort of high-interest money-market account used by Florida cities, counties and school districts - until Tuesday. That's when the State Board of Administration will meet to discuss a longer-term solution.

Local governments have withdrawn a total of $16.6-billion from the fund in November, or more than half its total assets; it closed Thursday with just $14-billion.

The run began after credit-rating agencies downgraded a small fraction of the fund's investments that was backed by mortgages. Though the actual danger to deposits was arguably minimal, fear - a product of the meltdown in Florida's housing and mortgage markets - snowballed, and withdrawals quickly followed.

"The participants are scared to death," said Coleman Stipanovich, who oversees the investment pool.

"Justified or not, they just lost confidence in the SBA," said Jeannie Garner, director of financial services for the Florida League of Cities.

Pinellas County, for example, removed its entire $290-million investment Nov. 20 and parked the money in a bank money-market account. St. Petersburg has withdrawn $104-million since Nov. 16, leaving just $4-million. St. Petersburg finance director Jeff Spies said local governments may not have been acting rationally when they pulled their money but rather reacting to fear and pressure from negative media coverage.

Some local officials refused to panic.

Pasco County left $486-million on deposit, for example, while Hillsborough County and its School Board left $872-million and $573-million, respectively.

Yet the broader run on deposits created a self-fulfilling prophecy that temporarily put them at peril. If state officials had allowed the run on deposits to continue Thursday, the fund's managers may have had to sell some or all of the mortgage-backed securities at fire-sale prices. Holdouts like Hillsborough County could have suffered losses.

"If we don't do something quickly, we're not going to have an investment pool," Stipanovich said during the meeting.

Some holdouts - roughly 900 depositors still have money invested - may suffer anyway because of the inability to withdraw critical funds.

The Florida Ports Council, a statewide trade group representing deep-water ports in Tampa and elsewhere, may be unable to make a $4.7-million bond payment due Monday. Jefferson County's School Board does not have enough cash to make payroll, neither does Indian River Community College in Fort Pierce. An expected influx of property-tax receipts could offer relief in some areas.

Several bay area officials discussed the fund crisis Thursday and how they decided between fight and flight.

Hillsborough County schools spokeswoman Linda Cobbe said the district considered removing its funds but decided not to on the advice of an outside firm. "We still have other means of making payroll," she said.

Paula O'Neil, chief deputy clerk of the Pasco courts, said the county withdrew only $17-million from the fund, enough money to meet payroll and other expenses for the week. She said clerk Jed Pittman was not worried because he believes the state will allow governments to make emergency withdrawals and will eventually dispose of its mortgage-backed investments.

Dan Klein, chief deputy clerk of the Hillsborough courts, said the county left most of its money in the fund because it believed the fund's actual risk at hand was small. But he worries that the freeze may be hard on small localities that have most of their money locked up in the fund. He also worries about the governments that did withdraw their cash.

"Are they turning around and putting it in investments that are even riskier?" he said.

Andy Jacobsen, cash and investments manager for Pinellas County schools, said he invests most of the district's funds himself because he has a banking background and can get a better rate of return. The average maturity of the state fund's investments is roughly 30 days. But Jacobsen times the investments to mature exactly when the schools will need money, giving him the flexibility to invest in instruments that grow more slowly, but pay off with higher interest rates.

Meanwhile, Jacobsen called the state fund's investment in mortgage-backed securities "not appropriate." Investments with short maturities should not be collateralized by loans that last two to 30 years. If a run on deposits had forced the fund to liquidate those securities for cash, he said, they would have done so at a deep discount.

Some local officials who watched Thursday's meeting of the State Board of Administration were not happy with the trustees' decision. Bob Inzer, Leon County's clerk of courts, wanted the board to restore investor confidence in the pool by using the state's massive pension fund $137-billion as a backstop. Sink, the CFO, strongly opposed the move, which she feared might compromise the pension fund's tax-exempt status.

Said Inzer, "We needed leadership in the state today, and we didn't get it."

Times staff writer Alex Leary contributed to this report. Steve Bousquet can be reached at bousquet@sptimes.com or (850) 224-7263.

Fast facts

Frozen funds

Dozens of Tampa Bay area governments and school systems still had money in the state's investment fund when officials temporarily suspended withdrawals Thursday. Below is a sampling of the investors and how much they have on deposit:

Hillsborough County $872-million Hillsborough County schools $573-million Pasco County $486-million Citrus County $144-million Pasco County schools $136-million Hernando County schools $91-million Pinellas County schools $34-million Dunedin $33-million St. Petersburg College $20-million Brooksville $8-million St. Petersburg $4-million Hernando County $2-million Plant City $53,000 Pinellas County $2,000

Source: State Board of Administration

What's next?

The State Board of Administration will meet Tuesday in Tallahassee to devise a plan that would let local governments withdraw critical funds as needed, such as to meet payroll or make debt payments. Until then, depositors will have no access to their funds.

[Last modified November 30, 2007, 00:24:15]