Officials demand bailout for fund

Published: Saturday, December 1, 2007 at 6:01 a.m.
Last Modified: Saturday, December 1, 2007 at 12:00 a.m.

TALLAHASSEE - School officials angrily said Friday that they expect Gov. Charlie Crist and others to prevent losses from sour state investments related to the national mortgage crisis.

"I believe that someone with some authority needs to stand up and say, 'This is Florida, not some Third World country. We'll get through this problem.''' said Bill Montford, the CEO of the Florida Association of District School Superintendents.

On Thursday, the State Board of Administration froze withdrawals from the Local Government Investment Pool after a panic-fueled run led to $10 billion in withdrawals in just 15 days. Local governments - including Orange, Miami-Dade, Pinellas and Sarasota counties - pulled their money amid fears that the pool could crash as investments backed by subprime mortgages default.

The pool was formed 25 years ago to allow local governments the chance to make returns on large amounts of money while allowing quick withdrawals for payroll and other needs.

It's worked well since its creation, but concerns about losses have left the fund with only $14 billion after the two-week run. The SBA's trustees froze withdrawals Thursday to at least delay the possibility that remaining investors would not receive all their money if the state were forced to sell assets immediately.

The trustees are Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum. On Tuesday, they will consider ending the freeze on withdrawals as well as consider longer-term fixes.

James Francis, a policy officer for the SBA, hosted an emergency conference call with local government officials Friday afternoon. Francis proposed a survey to gauge the likelihood of continued withdrawals if the freeze ends on Tuesday.

He initially asked school, city and county officials if they were likely to withdraw funds if they faced up to a 10 percent loss.

The SBA has no legal obligation to guarantee a dollar-for-dollar return on investments. But it was clear that's what local officials expect.

Buddy Irby, clerk of courts in Alachua County, said he was concerned that the "SBA is saying, 'How much will you take on the dollar?' I think that's the wrong message to send.''

Mary Ellen Elia, Hillsborough County schools superintendent, said, "the very fact that you're out here talking about us taking less than 100 percent is, in my mind, unacceptable." The Hillsborough district has $500 million frozen in the pool. "You know you've got people in this pool pulling their hair out to find money to meet payrolls, and there are others who left their money in, trusting you,'' she continued. "It's bizarre for you to be asking us these questions.''

Francis said that nobody wants local governments to lose money, but added that "we've got to be prepared to deal with the possibility that demands for (withdrawals) will exceed what we can raise.''

Some smaller governments said they needed their money to pay bills and employees by next week. But larger school districts said they would consider not only keeping their money in the fund to help, but also depositing more as soon as next week.

Charlotte County school superintendent Dave Gayler said the SBA pool saves local governments the overhead cost of investing while providing a decent return historically. He said the district would, if assurances were given by the SBA trustees, likely put more money into the pool.

"You've got what you need in the trenches,'' he said of local government support for the SBA. "We do need our political leaders to muster up some intestinal fortitude and say to us in the state of Florida that we're going to make this work.''

SBA staff will review the survey of school, city and county governments this weekend in preparation for Tuesday's meeting.

There was also discussion that lawmakers should promise to protect any investments. Spokeswomen for House Speaker Marco Rubio, R-West Miami, and Senate President Ken Pruitt, R-Port St. Lucie, said Friday that they were monitoring the situation but had made no decisions to get involved.

Rep. Carl Domino, R-Jupiter, is an investment manager worth $35 million - more than any other lawmaker. He said Friday that lawmakers may have to guarantee pool investments. He was unsure if the SBA had made investing errors, but said it made a public relations mistake in not disclosing the problem sooner. "If you would have had money in Chase Manhattan Bank and there were rumors something was wrong and you called the bank and they said, 'No comment,' you'd pull your money out,'' Domino said.

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