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Dunedin, Oldsmar Glad They Stayed in Pool

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By Mark  Schantz | The Suncoast News

Published: January 19, 2008

DUNEDIN, Fla. - DUNEDIN, Fla. - When it comes to investing city reserve funds the lesson learned by financial planners may be found in Kenny Rogers hit county song "The Gambler."

"You got to know when to hold 'em. Know when to fold 'em. Know when to walk way and know when to run," Rogers advised.

Those lyrics might have been ringing in the ears of financial planners from two North Pinellas cities, Dunedin and Oldsmar. They held firm and weathered a financial storm created in late 2007 by a run of investors on the Florida Local Government Investment Pool.

From September to December of last year, the assets of the pool dropped from roughly $27 billion to slightly less than $11 billion, according to news reports.

In November the pool, operated by Florida's State Board of Administration, froze funds after local governments pulled millions of dollars out of the pool. The panic was caused by news reports that some of the pool's assets were invested in securities tied to the troubled subprime mortgage sector.

As of this week Dunedin has $28.8 million in the state-run pool, about $4.2 million less than it did before the start of the run. Oldsmar had $12 million in the fund and left it there despite the brief panic.

Although Dunedin took out the $4.2 million as a cautionary measure, said Sandy Sanders, municipal Finance director, he was confident the pool's finances would weather the story.

Marne Burns, Oldsmar assistant city manager, shared that belief.

Now that things have calmed down, both feel vindicated in their decisions, Sanders and Burns said in interview last week.

According to a statement last week to the Legislative Joint Auditing Committee from Bob Milligan, the interim SBA executive director, the Local Government Investment Pool remains sound. The pool's A fund in late December received a AAAm rating from Standard & Poor's, the highest rating from the credit rating agency, Milligan, who was Florida comptroller from 1994 to 2003, noted.

Many municipalities, school districts, counties, and other governmental agencies invest in the SBA-run pool because of the comparatively high interest rates it offers, said Sanders.

Burns said the fund has been a lucrative and relatively safe place in which to invest and build reserves since it began putting money into the fund, in 1983.

The majority of the pool's investments were always sound, Burns said. Its only problem was the run caused by nervous agencies responding to news reports regarding the pool and its possible problems related to the subprime mortgage situation, she said.

In December, the SBA put a 15 percent cap on how much an agency can withdraw at one time from the pool and placed questionable holdings in a separate account, the funds of which can not be withdrawn.

In last week's interviews Burns and Sanders said by sticking with the pool they aren't facing a problem their counterparts at other agencies are now confronting.

Those that left the pool are no longer receiving its higher rates of return and are having to come up with ways to replace the lost interest income, they said.

Dunedin, which is one of the pool's largest local municipal investors, has $24.2 million in the AAAm-rated A fund, according to Sanders. It has $4.6 million in the portion of the pool that is still frozen, the B fund.

Oldsmar has $1.9 million in the B fund it cannot now remove, but will have access to much of its $10.1 million in the A fund.

The state has always touted this fund as a safe haven for taxpayers funds, Sanders said.

Burns said there were some lessons to be learned by the run, such as the importance of diversification, but in general the agencies that stayed in the pool did the right thing.

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