The pool’s managers said they had been compelled to freeze the pool to save it. Until the run, it was the largest of more than 100 such pools around the country, with $32 billion in investments. Because of withdrawals, it now has about $14 billion.
The pool has not suffered any actual losses on its investments in securities tied to subprime mortgages because it has not sold them. While it is unclear how much money, if any, the fund may lose from subprime investments, state officials say they have quarantined over $2 billion in assets from the fund because they no longer meet the pool’s investment guidelines or have some other problem.
Fund Frozen, Florida Towns Feel the Pinch
By KIRK SEMPLE and MARY WILLIAMS WALSH
PORT ST. LUCIE, Fla. — On Nov. 28, Marcia L. Dedert, finance director of this rapidly growing city, called the administrators of Florida’s state-run investment pool to ask whether it was still safe to park her city’s money there. She was hearing talk of urgent withdrawals by others worried about the pool’s investments in debt related to subprime mortgages.
After the pool’s manager told her the money would be all right, Ms. Dedert recalled, she deposited $135 million in bond proceeds. But less than 24 hours later, the administrators froze the pool and blocked withdrawals to halt a full-blown run. [P6: Rather Enron-esque, don't you think?]
Now the city cannot touch the money. And rest of the $371 million it has in the pool is also off-limits unless the city pays a 2 percent penalty.
Port St. Lucie is among hundreds of local governments in Florida that were drawn to the pool by its air of reliability and the promise of higher returns than banks offered. They now find themselves grappling with the consequences of having their money frozen.
Some have had to borrow money to meet day-to-day obligations. Others have had to shift money around for the time being or consider postponing long-planned projects.
For Port St. Lucie, the timing of the freeze could not have been worse. The city is trying to recreate itself as a center of the biotech industry and had just issued $155 million worth of bonds to lay roads, water pipes and sewer lines in a planned “jobs corridor,” where it hopes to house the companies it is courting from out of state.
“These are projects that we can’t afford to stop dead in their tracks,” Mayor Patricia P. Christensen said.
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