Tax Realty Consultant

Local governments drained more than $1.1 billion from Florida’s state-run investment pool when it reopened Thursday, a week after it was frozen amid a run that withdrew almost $10 billion on worries about its investments in securities backed by troubled mortgages.The pool’s problems provided another illustration of the wide-ranging and sometimes unexpected consequences rippling across the world’s financial markets as defaults rise on mortgage loans to people with shaky credit histories.

The withdrawals amounted to about 8 percent of the $14 billion pool, state officials said, and were expected because of the pent-up need governments had for cash after being unable to access their money for a week. The run dropped the pool from about $25 billion to under $15 billion before it was frozen last Thursday.

Some governments said they had renewed confidence because the most troublesome investments were walled-off from the rest of the fund. One large investor that left its money alone Thursday was the Charlotte County School Board.

The board’s chief financial officer, Greg Griner, said it had money to pay bills because December is when property tax collections come in, so the county was leaving its $50 million in place.

But several local government entities didn’t have the same confidence.

The Lee County School District withdrew a little over $45 million, the limited percentage allowed to be taken out, on Thursday, according to Greta Campbell, the financial accounting director.

Another $308 of the district’s money remains in the fund.

When the run on the fund occurred last week, the district only took out the normal amount of money to pay for normal operating cost. But now they feel a need to have safeguards to make sure payroll and accounts payable expenses are met.

“At this time we are working with our consultants and our staff to take the best action to protect taxpayers dollars,” Campbell said.

When the state froze an investment pool for local governments last week, Bonita Springs appeared to be in a better position than many other cities, counties and school districts that had relied on accessing that fund to cover routine expenses.

While Bonita Springs still had $3.8 million in fund at the time it was frozen, that money represented a portion of the city’s reserve fund, and it was not money that was budgeted to be spent in the coming year, City Finance Director Lisa Griggs Roberson said.

But Wednesday, the city learned that Lee County, which collects property tax dollars for the city and then invests the money until the city needs it, had placed $1.5 million of 2007 Bonita Springs property tax revenues in the state fund.

That is money the city had been counting on spending this year, and when the fund was partially unfrozen Thursday, Bonita Springs joined the crowd of local governments moving their holdings elsewhere.

“We’re in the process of pulling out $2 million, which is the maximum we can pull out right now,” Griggs Roberson said. “We just don’t want to be short of cash flow.”

Beyond that, she said, “we are going to be going to City Council at the next meeting to see what their wishes are.”

The council next meets Dec. 19.

She described the situation is unfortunate, and said that the state “should be held accountable” for its handling of the investment pool.

As for other investments the city has — those would be private money market accounts, and Griggs Roberson said she is not aware of any problems there.

State officials characterized the day’s activity as a positive, insisting that the withdrawals were less than they’d anticipated and noting that the fund was “well able to handle” them.

“There is no run,” said Tara Klimek, a spokeswoman for state Chief Financial Officer Alex Sink, who is a member of the board that oversees state investments.

Klimek also noted that a few deposits were actually made into the account, although new money coming in only totalled $7 million.

The fund pools money from towns, counties, school boards and other government investors. Last month, many governments withdrew their money when they found out the fund held millions of dollars in securities backed by mortgages, some of which were in default.

Local governments now only have access to 86 percent of their money in the pool. The remaining 14 percent has been blocked off as it is questionable in value because of ties to mortgages.

Of the amount available now, governments are able to withdraw up to 15 percent of their money, or $2 million, whichever is greater without penalty. To get more than that, they have to pay a 2 percent fee. The fund’s investments are now being managed independently by New York financial firm BlackRock Inc., which was hired by the state to address the account’s problems.

As soon as he was told he could take money out of the SBA account Lee County Clerk of Courts Charlie Green took out every dime he could.

Despite that, and the fact he took out $289 million before the state-run investment account was closed, the county still has $131 million in it.

That’s because Tax Collector Cathy Curtis had put $229 million into the account.

“She could have taken it out if she’s known,” Green said. “It’s the middle of tax season, and that’s what the SBA is set up for: someplace to put money short-term until it can be distributed.”

Of that $229 million $102 million was county money. When the SBA account was re-opened that money was transferred to the account Green controlled. When the state had closed the account it still had $54 million in county money in it, making a total of $156 million. The SBA told governments they could remove 15 percent of their money, and Green did.

Green said the SBA was divided into two accounts, split 86 percent and 14 percent. The 14 percent, he explained, is the solid investments and the 86 percent is that portion propped up by shaky investments like subprime loans. Interest from the good investments will be placed into the other account to help cover losses there. Governments are likely to receive no return on their ‘investments”.

“They made a big mistake,” Green said. “You never back short-term loans with long-term securities, and that’s what they did.”

Green said as soon as he can he will remove as much of the county’s money from the SBA account as possible.

“I’m kind of stupid but I’m not totally stupid,” he laughed.

The pool’s largest investor, state-backed Citizens Property Insurance Corp., didn’t withdraw any of its roughly $2 billion, said Citizens spokesman Rocky Scott. The insurance company said earlier in the week that it has ample cash on hand, including other investment income, to meet all expenses.

The city of Naples pulled an additional $2 million from the SBA account Thursday, said Interim City Manager Chet Hunt.

Naples City Council authorized the city’s finance director to pull the money from the account during Wednesday’s meeting. As of Thursday the city had about $11 million in the account.

Florida Gulf Coast University in San Carlos Park withdrew $10 million from the State Board of Administration fund before it was frozen by Gov. Charlie Crist last week.

FGCU usually has its investment money split between the SBA and the Special Purpose Investment Account but decided to put it all in the SPIA after several large entities like Orange County started taking their money away.

“We felt the run would continue, and at some point there would be a freeze on our assets,” said Joe Shepard, FGCU’s chief financial officer. “We don’t expect anything of a similar nature to happen with SPIA.”

Thursday three investors drained all the money they had in the part of the account that remained accessible, paying the fees to go above the limit, taking about $67 million out of the pool, Klimek said. She said she didn’t know who those investors were.

In a plea to local governments on the board’s Web site, it asked for governments to rejoin the fund to help shore it up. “If you can make a subscription — we urge you to support the fund by doing so,” the statement said.

If local governments decide to put new money into the account, all of it will be immediately liquid, with no restrictions on withdrawals, a rule intended to encourage new investment.

But local governments that pulled money out before the fund was frozen appeared to be taking a cautious approach to getting back in.

“I’m going to kind of sit and wait-and-see,” said Edward Bass, finance director for the city of Apopka in central Florida, one of the governments that fueled the run by withdrawing $12.4 million last month. “I’d want to see it in action, to show me there’s some preservation of the principal.”

St Vital Shopping Center Hotel

Realty Tax Property Assessment Consultant