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Hillsborough Pulls $167 Million From State Fund

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By MIKE SALINERO, The Tampa Tribune

Published: January 19, 2008

TAMPA - Hillsborough County pulled $167 million out of the State Board of Administration local government fund Friday amid continued concerns about the fund's investments in the subprime mortgage market.

The withdrawal still leaves the county with about $592 million in the fund, though only about 20 percent is in the portion containing riskier securities backed by subprime mortgages.

The county will put the withdrawn money in more-secure investments, such as money market funds and U.S. Treasury notes.

The SBA froze the fund Nov. 29 after news of risky investments surfaced, spurring a run by panicked local governments that withdrew $10 billion from the $27 billion pool. Friday was only the second time since November that governments were allowed to withdraw a portion of their money from the investment pool.

Hillsborough Circuit Court Clerk Pat Frank said she decided to withdraw the maximum allowable amount Friday, 22 percent, because of continued uncertainty about the fund's strength and because of higher fees the SBA is charging investors to pay for New York money manager BlackRock.

"The SBA has always charged fees, but until they brought in BlackRock those fees were extremely low, which made it a great deal for local governments," said Frank's chief deputy, Dan Klein.

The State Board of Administration also plans to hire Tampa public relations firm Tucker/Hall to improve communications and reassure investors about the fund's stability. SBA spokesman Michael McCauley said he didn't know how much money Tucker Hall will get because a contract has not been signed.

Hillsborough County did not pull its investments out of the fund during the November panic. Frank said she made that decision because she thought withdrawing all of Hillsborough's $871 million would have destabilized the fund.

"I had to measure what our risk was," Frank said. "But you've got all those small cities and counties relying on that fund."

As she weighed whether to withdraw the money in November, Frank said, she had visions of panicked depositors trying to get their money out of the Bailey Building and Loan in the movie, "It's a Wonderful Life."

Frank said she was born in 1929, the year of the great Wall Street crash that set off bank runs and the Great Depression.

"I heard all the stories," she said. "History does have a way of repeating itself."

While she doesn't regret her decision, Frank has questioned the legality of the SBA transferring money from governments that stayed in the fund to those that jumped ship. That left the remaining governments with more exposure to the risky investments, she said.

"They used our money to pay those who withdrew," Frank told county commissioners Wednesday. "We think that's illegal."

Friday's withdrawal left Hillsborough County with the third largest stake in the fund. The Hillsborough County school board took out $76 million in December but still has $438 million in the fund.

School board spokesman Stephen Hegarty said the district's financial officers consider the SBA Fund a safe investment. Proof of that, he said, was that the fund had enough liquidity, or ability to turn investments into cash, to allow withdrawals.

"Our finance guys think we're getting a good return," he said. "We think the stuff that happened today was a good thing. ... If we don't need the money, we're not going to pull it out."

The largest investor in the SBA pool, with $1.15 billion, is Citizens Property Insurance, the state's insurer of last resort. Citizens made the largest withdrawal Friday, $371 million.

Pasco County withdrew $97.5 million out of the fund Friday, leaving the county's SBA account at $274.2 million. Pasco had withdrawn $65 million on Dec. 6.

The SBA trustees - Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum - allowed investors on Dec. 6 to withdraw 15 percent or $2 million, whichever was larger.

Reporter Mike Salinero can be reached at (813) 259-8303 or msalinero@tampatrib.com.

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