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Letter to the editor

State's investment fund closer to stability

Local governments pull out $1.5B, while $560.7M is deposited.

By HELEN HUNTLEY, Personal Finance Editor
Published December 8, 2007

It wasn't exactly a return to normalcy, but Florida's battered local government investment pool had a better day Friday. While local governments pulled another $1.5-billion out of the fund, they also put $560.7-million back in.

"Our sense is that we've done a nice job of restoring calm; we have not yet restored full confidence," said Simon Mendelson, a managing director for BlackRock Inc., which has taken charge of the fund's investments. State Chief Financial Officer Alex Sink is working on that task. She was in Tampa on Friday meeting with local government officials to answer their questions.

Depositors started a run on the fund last month after learning it had invested in mortgage-backed securities that had defaulted or been downgraded. The State Board of Administration froze the fund for a week, restructured it and reopened it Thursday on a restricted basis. The first day brought $1.2-billion in withdrawals offset by just $7-million in deposits.

Many depositors are taking out the maximum allowed without incurring a penalty - 15 percent of their liquid assets or up to $2-million, whichever is more. The board says three pulled out so much money they were charged a 2 percent penalty on excess withdrawals. The Jacksonville Electric Authority, Desoto County and the city of Perry paid a combined $1.36-million to pull $66.7-million from their accounts.

"We felt it was worth a few thousand dollars to get several million out," said Bob Brown, Perry's city manager. "The penalty amounted to about the last three months' interest." He said the City Council voted to withdraw the money at an emergency meeting Wednesday.

"They just felt it was prudent to have the money in a safe place and they didn't feel the SBA fund was safe any longer," he said. Initially, the city will keep the money in local banks, he said.

Citizens Property Insurance Corp., the fund's largest investor, said it has pulled $282-million to reduce its exposure.

But the Hernando County School Board was putting money in Friday as well as taking it out, testing how well the system is working. Chief financial officer Deborah Bruggink said the board is looking at other options for part of its cash, but will continue to use the state fund.

"The pool has been good for us over the years," said Bruggink. "It's been a wonderful program."

She says she expects the state Legislature to "step up to the plate" if the fund suffers a loss once the troubled securities have had time to mature. Those securities have been isolated in a separate B fund from which withdrawals are not permitted. The liquid A fund now has $10.3-billion in cash and high-quality assets, while the B fund has assets with a face value of $2-billion and an unknown market value.

An advisory committee representing investors will meet with BlackRock officials Tuesday.

Helen Huntley can be reached at hhuntley@sptimes.com or (727) 893-8230.

[Last modified December 7, 2007, 22:42:10]