State suspends investment fund withdrawals
As cities, counties and school boards withdraw billions of dollars from a shaky state investment fund, Gov. Charlie Crist and two other top state officials voted Thursday to suspend all future withdrawals from the fund, pending a review by an independent advisor.
The action, in an atmosphere of crisis, came at a special meeting of the State Board of Administration, which consists of Crist, CFO Alex Sink and Attorney General Bill McCollum -- the three officials with the responsibility of overseeing the state's investments.
"Let's stop the bleeding," Crist said, echoing Sink's proposal to suspend all withdrawals from the fund.
The mass exodus of withdrawals -- at least $3.5-billion on Thursday alone before the vote, and $10-billion over the past two weeks -- has come from a fund known as the local government investment pool, managed by the state. The 25-year-old fund has a solid track record of producing healthy rates of return.
The fund has been hit with credit downgrades because some of its securities are backed by mortgages, but none in the discredited subprime market. Still, with mortgage-backed investments stirring fears among investors, local governments have been pulling their cash out of the fund at an alarming rate, even though other investment alternatives will produce smaller rates of interest.
Pinellas County yanked its entire $290-million investment from the fund on Nov. 20, and St. Petersburg pulled about $50-million out of the fund earlier this month.
Sink and Crist acknowledged that by suspending any more fund withdrawals, the state may be putting cities and counties at some financial risk in paying employees or making debt service payments on outstanding bonds. "We don't know," Sink said. "But it's three business days."
Next Tuesday is the date of a regularly scheduled Cabinet meeting, at which the same three officials expect to review an advisor's recommendations and decide what other steps to take.
Thursday's meeting was a difficult one for Coleman Stipanovich, executive director of the Board of Administration, who blamed much of the withdrawal fervor on a Nov. 15 Bloomberg News story that Stipanovich said created a "climate of fear" among the fund's investors But the normally unflappable Stipanovich (pictured) seemed nervous and rambled on with opinions and explanations, forcing Sink to cut him short at one point.
"I'm kind of getting a little bit tired of this 'we think' commentary," Sink told Stipanovich.
Stipanovich's proposal was to use the Florida Retirement System, with its $137-billion in assets, as a backstop for the local government pool, but Sink reacted with alarm to that idea and it was quickly rejected by the three-member board. As of noon Thursday, the fund's assets had shrunk from $24.5-billion three weeks ago to $15-billion.
Local government officials attending the meeting blasted the decision not to use FRS as a backstop. "We needed leadership in the state today and we didn’t get it," said Leon County Clerk of Courts Bob Inzer. "It would have restored confidence and what we did was we walked away." Inzer said his county has taken out tens of millions from the fund.