A thaw for frozen millions?

Many local governments look anxiously today to see if their funds will be accessible.

By BARBARA BEHRENDT, Times Staff Writer
Published December 4, 2007

Hernando School District officials were critical of decisions by other entities to pull their funds out of the SBA accounts, especially since officials warned them of the potential to harm the fund. Pictured from left: School Board attorney J. Paul Carland, Ken Pritz, executive director of facilities and support operations, Superintendent Wayne Alexander and School Board Chairman Pat Fagan.
	[Maurice Rivenbark | Times]

BROOKSVILLE - With the state's investment pool frozen since last week, local government leaders with millions in public dollars at stake are anxious to see what the State Board of Administration does today to stabilize the troubled fund.

Hernando Clerk of the Circuit Court Karen Nicolai wasn't willing to wait and see how it all shakes out.

On Nov. 8, just as word was beginning to circulate that the investment fund was suffering, she decided to pull $30-million in county operating funds from the SBA to invest elsewhere. The county still has $2-million in the fund.

The SBA is a primary investment spot for county and city governments, school boards and other entities collecting tax dollars. Tax revenues are invested there until the government needs the money to pay bills.

The investment pool has long been perceived as a high-yield and secure option for investing public funds. But Nicolai said Monday that the fund is not as secure as some might think. As with all investments, there is a risk.

As it became clear that the SBA fund was getting hit by the housing and mortgage woes because some of its investments were supported by securities related to mortgages, some governments began to pull their funds from the pool in a kind of run on the bank.

Hernando was among the first. "I didn't want to take the chance," Nicolai said. Last week, the SBA froze the accounts to avoid any additional withdrawals by investors.

Late last week, Nicolai sent an e-mail out to county employees assuring them that Hernando County was fine. Bills would be paid and paychecks would not bounce.

"The county's portfolio of over $200-million is invested in strong conservative investment instruments," she wrote to employees. "Our primary goal is, and always has been, to protect the county's assets."

Another question raised has been whether the SBA's troubles would affect county retirement and pension funds, and Nicolai assured employees that the state has discussed helping with that and some safeguards to pension assets should happen soon.

The city of Brooksville has $8.5-million in various SBA investments. The city considered pulling funds out but "we felt the SBA investment pool would be harmed by this panic situation and we believed the city's principal was safe," wrote city finance director Steve Baumgartner in a Friday memo to the City Council.

He added that the city had enough funds in other investments to make sure bills and payrolls are met.

At the Southwest Florida Water Management District, the news of the freeze of assets hit hard. In a Friday letter to Jerry McDaniel, director of the state's Office of Policy and Budget, Swiftmud's governing board Chairwoman Judith Whitehead criticizes those governments that pulled out of the SBA.

Calling the run on the fund the "irrational action of certain investors," Whitehead notes that the SBA has benefited the public and was "an excellent, responsive, well-managed investment vehicle."

Swiftmud has $285-million in the SBA fund with $26-million of that state funds. That total represents about half of the district's investment portfolio and nearly all of its liquid funds to pay bills.

"Since the fund was being used for daily cash management, the SBA's action caused the district to take extraordinary short-term measures to meet $14.5-million in current obligations, including payroll, a land purchase closing and matured accounts payable," Whitehead wrote.

Whitehead goes on to urge state officials to take a conservative approach to solving the fund's problems by having SBA "stand behind or guarantee the fund and not liquidate the fund in a 'fire-sale.' "

Hernando School District officials were also critical of decisions by other entities to pull their funds out of the SBA accounts, especially since officials warned them of the potential to harm the fund

"I'm disappointed," said finance director Deborah Bruggink. "I think it was greedy on their part."

Despite having some $91-million frozen in the state fund, she said, the district should have no immediate problems meeting their payroll.

"We've got over a month," finance director Bruggink said. "We got a distribution of tax money yesterday or the day before, $30-million. I think we'll be all right for a while."

Staff Writer Tom Marshall contributed to this report. Barbara Behrendt can be reached at behrendt@sptimes.com or 352 848-1434.

[Last modified December 3, 2007, 20:27:56]