Sunshine State Asked to Split Local Govt. Investment Fund

December 4, 2007 ( - An investment consultant hired by the state of Florida to chart a course of action for the state's troubled local government investment pool has recommended simply splitting off $2 billion of risky assets.

A Reuters news report said the suggestion from BlackRock Inc., made during a meeting of the State Board of Administration’s advisory panel, called for the placement of about $12 billion of high-grade investments in one fund and placement of $2 billion of questionable investments in another.

Reuters said the split would be maintained until credit markets now roiled by troubles in subprime mortgages improve. Local governments would also be asked for assurances not to make a run on the pool and to redeposit some funds that have been taken out already.

The discussion came after a move last week by state officials to shutter the Sunshine State’s Local Government Investment Pool after a mass exodus by school boards and other local-government investors developed – driven by news that the $2 billion of high-yielding assets with exposure to subprime mortgages had been downgraded.

According to news reports, dozens of local governments pulled out more than $16 billion from the investment pool during November, leaving about $14 billion.

State officials last week rejected a proposal to tap the state’s $137 billion pension fund to bolster the local government pool. Speaking to reporters on Monday, Governor Charlie Crist said he was optimistic the local pool could be preserved, but he reiterated he would not put the state retirement fund at risk.

“What I think is mandatory is we protect the pension fund for people rather than this municipal fund, in essence, for local governments,” Crist said.