BRADENTON, Fla. — Over the past two months, Palm Beach County withdrew $60 million it had invested in the Florida State Board of Administration’s local government investment pool because of concerns about the lack of liquidity for investments tied to subprime mortgages. Although the amount it had invested in the SBA pool represented a small amount of the county’s $2 billion investment portfolio, which is managed in-house, the “safe” investment alternatives, such as money market funds, are earning less. “We had not used [money market funds] in a couple of years because the SBA was paying a much higher interest rate,” said Sharon Bock, Palm Beach County’s elected clerk and comptroller, noting that investments now are earning about 1% less than the SBA offered.Bock said county investment officials in September began questioning what exposure the SBA had in subprime investments. “I just know we felt uncomfortable with the information we were getting from them and that’s what caused us to begin our withdrawals,” said Bock, whose investment managers made the last withdrawal last Wednesday, just a day before the SBA froze withdrawals and deposits from the pool.“Never in a million years did we think they’d suspend withdrawals,” Bock said. The action came after more than $10 billion was withdrawn in the last two weeks alone from the $27.1 billion pool, despite attempts by state money managers to control rumors with a press release last week and a regular newsletter. As of last Thursday, a little more than $14 billion remained in the pool.The Local Government Investment Pool Advisory Committee held conference calls Friday and yesterday after hiring BlackRock Inc. as an adviser, to review potential actions. As part of that process, the committee yesterday released a survey of how much local governments and school districts need from the pool to meet immediate expenses, including funds to cover debt service payments. The committee also released comments from local governments concerning the situation. Additional information on the pool and the Advisory Committee is available at www.sbafla.com/pool.The SBA, which is overseen by Gov. Charlie Crist, chief financial officer Alex Sink, and Attorney General Bill McCollum, meets today and will be asked to approve a plan to safeguard assets and provide liquidity for the pool. Although the Florida pool is not rated, analysts are conducting their own surveys of local governments and financial advisers to gauge potential impact from the SBA’s freeze on withdrawals.Fitch Ratings analyst Amy Laskey said in a statement late Friday that discussions with local governments would determine the proportion and types of holdings each locality has with the pool as well as holdings outside the pool and short-term liquidity needs for operations and debt service costs, the availability of third-party credit facilities, and the estimated schedule of property tax payments.“Fitch believes that the property tax collection schedule in Florida, under which most localities are now beginning to receive the bulk of revenues, will substantially mitigate any delay in access to LGIP funds,” Laskey said. Fitch will assess the situation following today’s SBA meeting. Moody’s Investors Service analyst John Incorvaia said Monday morning that because property tax revenues are beginning to come in it appeared many issuers would have adequate cash flow for the near term. Moody’s also expects to issue a statement after evaluating the SBA’s action today.Standard & Poor’s said it had asked state officials if the pool holds funds for debt service payments and whether the money would be made available to governments. That information is part of the survey conducted by the pool advisory committee.A spokesman for the SBA said yesterday that while some of the pool’s investments with exposure to subprime risks have been downgraded below purchase credit rating guidelines, they have continued to pay interest. Part of the plan to be discussed by the SBA today involves credit protection for the pool against the potential for default by about $1.5 billion in securities from Axon Financial, KKR Atlantic, KKR Pacific, OTTIMO Funding, and Countrywide Bank FSB.
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