The state’s top elected officials were taken by surprise, says Sink’s deputy chief of staff, Kathy Baughman-McLeod. At 9:51 p.m., Crist’s press office e-mailed a news release saying Sink had requested an emergency trustees meeting the next morning.

While Stipanovich was still speaking at 11 a.m., his investment pool had fallen to $12 billion, and there was no end in sight.

No bailout

Stipanovich thought he had some honeymoon money — Florida’s $137-billion pension fund, the world’s 12th-largest pension system and by far the largest of the six investment pools managed by Stipanovich and the State Board of Administration. But in state government, you can’t just dole out cash. There are rules, fiduciary duties, politics. Stipanovich had money, but he didn’t yet have a plan on how to get to it.

There were no Mary and George Baileys in the Capitol’s Cabinet room that day — no one offering a cash infusion, no one with a rousing speech about the public interest in sticking together. No one noted all that Stipanovich and his predecessors had done for the investors — above-average returns on the local government pool, 18% last year on the huge pension fund (which gave Florida taxpayers a windfall savings of about $14 billion in future pension costs). Lacking available cash or any other plan, the trustees froze the fund through Dec. 4, directed the hiring of an outside financial adviser to deal with the run, then got up and left the table.

No bailout, Crist told reporters afterward.

“They really should have been on top of this and pledged the full faith and credit of the state,” says Jeannie Garner, director of financial services at the Florida League of Cities, which had $18 million in the investment pool but had avoided drawing it out until the Cabinet could speak. “They haven’t said that. Nobody has said that.”

Some surprised government agencies, with virtually all their money still in the fund, had to take out loans overnight to meet payroll and other obligations.
When the fund reopened, the troublesome investments, by then about 14% of the shrunken pool, were isolated in a “Fund B” to be held until the troubled assets matured. Stipanovich and his new advisers, the highly regarded global investment firm Blackrock, thought the defaulted securities would eventually pay out in full, but it would take more time than expected.

Meanwhile, withdrawals were limited to 15% of an investor’s account, or $2 million for smaller investors. You could take more, but there was a penalty of 2%. By year-end, 21 investors had paid the fee on $309 million in withdrawals. Another $2.2 billion was pulled out without penalty. The good news, for those still in the fund, was all the November interest plus the redemption fees would go to shore up Fund B.

In Hillsborough County, the largest local government investor in the pool with $700 million at year-end, financial managers began wondering whether they were heroes or chumps. Clerk of Court Pat Frank, a former state senator and county commissioner, had left Hillsborough’s money where it was, though she diverted the fall flood of new tax revenue to other accounts.

“I think Pat Frank did the right thing,” says Hillsborough’s deputy finance director, Eric R. Johnson (who doesn’t work for Frank). “We may pay some price for that. But if we had pulled our money out when everybody else did, we would have guaranteed that the fund would have spiraled into illiquidity.”

“Government is a different kind of investor,” he adds. “It’s like disaster
preparedness. We have a concept of mutual aid. It burns me that Pinellas, Leon County, all those governments bailed out ... risking the funds of every remaining investor.”

Tags: Politics & Law, Banking & Finance, Government/Politics & Law