Local government invesments frozen
by Michael C. Bender | November 29th, 2007A state-run investment fund that has consistently produced returns since its creation 25 years ago was shut down this morning by the State Board of Administration after a run of withdrawals from local government officials hoping to avoid becoming the next casualty of the sub-prime mortgage meltdown.
Local government officials have pulled out more than $10 billion from the $25 billion fund in the past two weeks, including $3.5 billion just this morning, prompting the SBA to halt any more withdrawals until at least Tuesday.
The board — made up of Gov. Charlie Crist, CFO Alex Sink and Attorney General Bill McCollum — decided that the run put at risk investments remaining in the fund. The fund is similar to a money market that local governments use like a checking account to store revenues like property taxes and make withdrawals to meet payroll.
The recent run of withdraws came after the SBA announced that $2.2 billion of its portfolio had been downgraded to below investment grade and another $3.6 billion was on credit watch because of the sub-prime market meltdown.
The Local Government Investment Pool does not hold any sub-prime mortgages. But investors have backed away from most mortgages, which has devalued the mortgages that are included in the fund.
The immediate reaction from local government officials at the meeting today was that the state “walked away” from an opportunity to secure the investment fund. “The state, when they had their opportunity, walked,” said Leon County Clerk of Courts Bob Inzer.
SBA Director Coleman Stipanovich suggested the board protect the pool by moving the questionable investments into state retirement funds.
That proposal was quickly shot down by Sink, who questioned the legality and opposed putting the risk on “the backs of retirees.”
McCollum initially supported Stipanovich’s plan, but eventually voted with Sink and Crist, who said the boarded needed to protect the remaining investment.
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