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County pulls most of its funds out of investment pool

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By Jeff M. Hardison

BRONSON - Up north in Tallahassee, the weather was too warm for a frozen pool from Nov. 30 to Dec. 6, but when it came to securing investments - that was a different story.

All activity in a state-run investment pool was frozen from Nov. 30 until Dec. 6 as the result of a run on funds. This impacted Levy County.

Florida Local Government Investment Pool (LGIP) funds are managed by the State Board of Administration (SBA). Emergency action to freeze the LGIP money came from the SBA Board -- Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum.

The freeze resulted after the previous two-week span of county and municipal governments pulling about $10 billion out from the investment pool, according to records.

An erroneous report in Bloomberg News said $900 million of defaulted "asset-backed commercial paper" is almost 5 percent of the LGIP holdings, according to a Nov. 28 press statement from now-former SBA Executive Director Coleman Stipanovich.

Stipanovich, who was appointed by former Gov. Jeb Bush, said on Nov. 28 that the LGIP has collected approximately $64 million in principal and interest payments since August on the downgraded investments known as "asset-backed commercial paper," such as mortgages on real property.

Stipanovich resigned on Dec. 4, according to Michael McCauley, SBA spokesman. BlackRock Financial Management of New York was named as the interim manager for the pool, McCauley said.

On Dec. 10, BlackRock reported the planned outflows occurred as expected in the first two days after the freeze was lifted.

"Also, we were very happy to see over $7 million come into the fund on the first day," according to a report on the SBA website. "While the amount was small, it exceeded our expectations."

There has been some impact on Levy County tax dollars as a result of the run on investments by many government entities.

Levy County Clerk Danny Shipp said Levy County had about $10 million in the fund, which was paying in the range of 5.6 percent. Local banks pay 3.75 percent now, he said.

Shipp pulled about $6 million out from the fund, he said, before the freeze on Nov. 30. He moved that money to the local banks. After the state opened the account, Shipp drew on the other $4 million from the fund only as the county needed the money. Sheila Rees, chief deputy officer and finance director in Shipp's office, noted on Dec. 10 that the state has limited withdrawls to be $2 million per account.

The other $2 million, therefore, must remain in the account.

McCauley said on Dec. 5 that the LGIP would open on Dec. 6 with two funds.

One fund, equaling about $12 billion or 86 percent of the whole LGIP, is for liquid investments. These are known as "money market appropriate assets," according to a BlackRock publication.

The other $2 billion or 14 percent will not be liquid. That part of the LGIP is being held in investments until market conditions alleviate the stress on those funds, McCauley said. The $2 billion in assets will be in what is known as "assets in default, impaired or having significant credit risk."

More than half the securities in that fund are expected to pay in full, according to BlackRock. However, "The remainder is indeed uncertain - as we have discussed - but somne level of recovery on these is likely as well."

BlackRock plans to continue building confidence in the LGIP, according to a statement on the SBA website.

Counties and municipalities will be able to deposit investments in the liquid part of the LGIP, McCauley said. As for withdrawls, there was a limit of $2 million or 15 percent - whichever is greater - placed on holdings on Dec. 6, McCauley said.

Levy County School Board Finance Director Bob Clemmons said the Levy County School Board plans to take its $1.7 million out of the LGIP. The School Board is also changing its direct deposit of state funds to be in another institution, he said.

Clemmons feels it is most prudent for the School Board to wait on investing in the LGIP again. He said the pool has helped in the past and he hopes it recovers again.

Yankeetown Mayor Dawn Marie Clary said on Dec. 5 the town is pulling all of its $500,000 LGIP investment out.

City managers and town clerks from Chiefland, Williston, Bronson, Cedar Key, and Inglis said those towns and cities had no funds in the LGIP. The Fanning Springs Town Clerk Sheila Watson failed to return repeated calls on a couple of days for information about that town's involvement, if any, in the LGIP.