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Hundreds of local governments have billions tied up in an investment account state officials froze last week. Tomorrow, the state will decide how much, if any, the local governments can start withdrawing. As Mike Vasilinda tells us, smaller governments in particular are having to borrow to make ends meet.

Hear it Here: Local Government Investment Fund Problems

It was a classic 1920’s run on the bank. Local governments withdrew 16 billion from a state fund after news of bad investments.

The fund was frozen to halt the drain of cash.

“What happens to the participants who have the last 2 billion dollars in the pool?” CFO Alex Sink said. “They get zero.”

In rural counties, officials had to scramble to make payroll. Hal Wilson has 4 million of Jefferson County’s School cash in the fund.

“Alex Sink, making that motion to freeze the pool, she destroyed all remaining confidence in the pool,” Jefferson County Schools CFO Hal Wilson said.

The problem facing local governments is that because of bad investments in the state pool, there’s just not enough money to pay everybody off and keep everybody whole.
State staff worked all weekend with a hired consultant, looking for ways to keep the fund viable and solvent. A recommendation is expected to be taken up by the Governor and other investment board members Tuesday.

“I don’t want to prejudge the advice we’re gonna get, so I’ll wait until tomorrow,” Governor Crist said. “But I think it’s going to be fine.

The Governor side-stepped questions when asked if fund managers had been doing their job.

The fund has deposits of about 10 billion dollars right now, but only assets of about 8 billion.