Florida Locales Divest Fund Tied to Bad Mortgages

In Florida, dozens of cities, counties, and school boards have yanked $13 billion of investments from a state-run fund that invested some of its money in securities backed by subprime mortgages that had defaulted.

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Meanwhile, some states are running into trouble because of investments they made in the subprime mortgage market. In Florida, local governments have yanked $13 billion dollars from a state investment pool; that's nearly half the fund's total value. The reason: investors learned some of the pool's funds were in securities backed by mortgages that had defaulted.

NPR's Greg Allen has more.

GREG ALLEN: In Florida at least, it's not a great time to be a county financial manager. Hal Wilson directs finances for rural Jefferson County. After Florida's top officials froze the statewide investment pool, he went to work Friday morning wondering how he was going to make the county's monthly payroll. He wasn't alone.

Mr. HAL WILSON: People actually lined up at the door when I got to work on Friday morning, and I had to assure them that we would do everything we had to do to make the payroll good.

ALLEN: Wilson says he made the county's $850,000 payroll by stopping payment on checks to vendors. He's angry that while many other local governments in Florida were pulling their money out of the pool, fund managers continued to reassure investors their money would be safe and available.

Ken Burke wasn't as trusting. Burke directs finances for Pinellas County. He became concerned about reporters that some of the pool's funds - about $1.5 billion - were invested in securities backed by subprime mortgages that had defaulted. He pulled all $290 million of Pinellas County's money out of the investment pool run by the State Board of Administration, the SBA.

Mr. KEN BURKE: You can call it panic, and obviously I thought about that because I want to be a good citizen for the state of Florida. But I put that blame on the SBA for not giving adequate information. If they had done that, I would have had some confidence in their solution maybe.

ALLEN: At a meeting last week, the fund's director, Coleman Stipanovich, asked state officials to approve a bailout backed by Florida's $137 billion pension fund.

Florida Governor Charlie Crist made it clear to Stipanovich that while he's concerned about local governments, turning to the pension fund for help is a non-starter.

Governor CHARLIE CRIST (Republican, Florida): We have a higher duty, not to just help local government make a lot of dough...

Mr. COLEMAN STIPANOVICH (Director, State Board of Administration): Right, sure. No, absolutely.

Gov. CRIST: ...but to also to make sure that those who are invested in the pension, the people, are protected first.

Mr. STIPANOVICH: Absolutely.

Gov. CRIST: Okay.

ALLEN: Yesterday, outside consultants hired to assess the investment pool's finances briefed investors on a plan that they hoped would bring it back to health. One of its chief aims is to entice counties and cities to bring their millions of dollars back to the investment pool. But before that happens, many local governments say they want a guarantee that even in the worst case scenario, investors would get 100 percent of their money back. Today the consultants are briefing the governor and other state officials on their plan.

Like many county money managers, Hal Wilson of Jefferson County is looking to state officials for a leadership.

Mr. WILSON: The governor and the cabinet have to step up to the plate and pledge the full faith and credit of the state of Florida behind this fund. If they don't do that, then the fund and our confidence in the state leadership will be irreparably harmed.

ALLEN: While Florida is on the cutting edge of this problem, it's not alone. Government investment funds in other areas, including statewide pools in Montana and Maine, are also under scrutiny, and fund managers are on the hot seat for investing in securities backed by risky subprime loans.

Greg Allen, NPR News, Miami.

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