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Letter to the editor

Troubled fund hits cities hard

A Bank of America cash fund couldn't meet withdrawals.

By HELEN HUNTLEY, Times Staff Writer
Published January 12, 2008

The state's Local Government Investment Pool isn't the only cash fund to run into problems with mortgage-backed securities. Florida cities, including St. Petersburg, New Port Richey and Seminole, invested in another of those problematic funds, Bank of America's Columbia Strategic Cash Portfolio.

When the Columbia fund couldn't meet withdrawal demands, it distributed securities to investors instead of giving them cash. Although the market for the securities has dried up, they are still paying 5 percent interest.

Florida Trend magazine reported that the city of St. Petersburg got stuck with $65-million of the illiquid securities, which it plans to hold to maturity. Finance director Jeff Spies told Trend that the city got caught in "atrocious" timing, asking to withdraw its money the day Columbia froze the fund.

New Port Richey, Seminole and a group of other Florida cities were more fortunate. Instead of investing directly with the Columbia fund, they invested through a fund run by the Florida League of Cities, which decided to bail out its investors. Trend,which like the St. Petersburg Times is owned by Times Publishing, reported that the league assumed all the risk of loss on the $187-million in investments and borrowed $156-million to create a new, liquid investment pool for cities.

"The action the league took demonstrated fiduciary responsibility," said Rick Snyder, finance director for New Port Richey, which had $18.6-million at stake. "The state of Florida should demonstrate that same responsibility."

[Last modified January 11, 2008, 23:00:10]