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Letter to the editor

Depositors drain $1.2B of reopened state fund

Withdrawals were frozen for a week after a slew of withdrawals.

By HELEN HUNTLEY, Personal Finance Editor
Published December 7, 2007

Within hours after Florida's beleaguered government investment pool reopened for business Thursday after a run on its holdings, depositors drained 10 percent of the fund's assets.

Counties, cities and school boards pulled $1.2-billion out of the $12-billion liquid portion of the money market fund. Many opted to take out 15 percent of their liquid assets, the maximum they were allowed without penalty.

The Hillsborough County School Board withdrew $76.7-million "in an abundance of caution" even though it had no immediate cash crunch, spokesman Steve Hegarty said.

The Pasco County Commission pulled out $65-million and voted to ask Auditor General David Martin to investigate whether Florida's State Board of Administration failed to follow its investment policy. The commission also plans to consult a securities lawyer.

The State Board of Administration, which manages the money market-style fund, froze withdrawals for a week to restructure the fund after panicky investors began pulling their money out. The board revealed that the fund holds $2-billion worth of defaulted and downgraded investments, mostly in mortgage-backed securities. Those were placed in a separate "Fund B" from which no withdrawals are permitted.

The state is hoping to build up the primary fund, "Fund A," to the point where it can once again offer withdrawals on demand. The withdrawal percentage is expected to increase as the fund stabilizes and the securities it owns reach maturity. On its first day back in business, the fund attracted $7-million in deposits. Property tax receipts, which normally would be flooding into the fund this time of year, are being funneled elsewhere.

"This level of redemptions was very much in line with our expectations," the board said in a statement Thursday. "We are pleased that we also saw some subscriptions and expect to see further subscriptions over the coming days."

Withdrawals are certain to taper off today because so many investors already have pulled out as much as they could without penalty. However, they aren't over yet.

Pinellas County Tax Collector Diane Nelson plans to pull about $7-million, the maximum allowed, from the fund today, Deputy Steve Farber said. He said lack of access to the remaining $50-million on deposit will not create an immediate problem.

State officials said three investors took all the money they had in the "A" fund - about $67-million - even though it meant paying a 2 percent penalty fee on part of the withdrawal.

The state has been working with banks to arrange lines of credit secured by A fund shares for those who need access to their money and don't want to pay the penalty.

Times staff writer David DeCamp contributed to this report. Helen Huntley can be reached at hhuntley@sptimes.com or (727) 893-8230.

[Last modified December 6, 2007, 22:43:07]