State investment pool questioned

Published: Monday, January 7, 2008 at 6:56 p.m.
Last Modified: Monday, January 7, 2008 at 6:56 p.m.

TALLAHASSEE, Fla. - Baffled lawmakers demanded answers Monday about how the state agency that invests local government money could have put the funds into mortgage-related securities that later caused a panic, but didn't receive any.

Lawmakers from both parties on the Joint Legislative Auditing Committee repeatedly asked officials from the State Board of Administration, Chief Financial Officer Alex Sink's office and an audit committee looking for the same answers how decisions were made to invest local government money in a number of securities that were tied to mortgages.

Downgrades in ratings of those securities subsequently led several local governments to withdraw money from the pool. After those withdrawals were reported by the media, the run snowballed, with more governments removing money from their accounts.

The run on the Local Government Investment Pool in November dropped the pool's assets to $14 billion from more than $27 billion before the fund was temporarily frozen to stop the run. The head of the SBA, which invests several pools of government money in Florida, including the state pension fund in addition to local government's money, stepped down amid questions about the run.

The Legislature's Joint Legislative Auditing Committee on Monday asked the new head of the SBA, Bob Milligan, basically: what happened?

Milligan told lawmakers he's waiting to find that out himself, and hoping to after the SBA's audit committee delves into the matter.

Rep. Susan Bucher, D-Lantana, and a couple other lawmakers said they were particularly concerned that there seemed to be warnings as early as last March that there weren't adequate guidelines for how to manage certain types of investments.

A March report by internal SBA auditors warned that the agency didn't appear to have a way to review overall risk in all the agency's investment and was relying on too few brokerages when buying securities. The SBA responded at the time that it has undertaken an effort to create more overall risk oversight. And it said that only a few brokerages are willing to undertake such large securities deals.

Bucher and other lawmakers wanted to know what was done about that March audit, and whether changes were made. Milligan and Melinda Miguel, the chairwoman of the audit committee now trying to figure out what happened, said that was a question they also wanted to know the answer to.

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