ORANGE COUNTY IN BANKRUPTCY : Fallout Still Spreading Across U.S. : Finance: Investors flee Texas fund. Ohio county and Georgia utility suffer financial losses.
The impact from Orange County’s financial crisis continued to ripple through the rest of the country Monday as some local governments had to deal with fresh threats to their fiscal stability.
In Texas, investors continued to flock from a short-term investment pool run by the state treasurer’s office for more than 1,300 different municipalities after it became clear that the $3.7 billion TexPool fund borrowed heavily to invest in securities.
By Monday, withdrawals doubled to $655 million even as the government tried to soothe local investors. The state denied that its strategies were the same as Orange County’s.
In Ohio, Cuyahoga County officials have outlined a plan to slash 11%, or more than $35 million, from next year’s county budget, after losing $115 million on a $880-million investment fund that borrowed heavily for its investments. Spending will be frozen for three years after that.
The investment pool included scores of suburban governments and public agencies such as libraries and sewer districts.
The Municipal Electric Authority of Georgia, a company that jointly owns four power plants, told investors it will be able to absorb a more than $40-million loss in its $907-million investment portfolio, which included risky derivative securities.
Treasuries apparently free of problems are also trying to calm investors. Massachusetts, which runs a $1.3-billion money-market fund, mailed a letter to investors that reassures them their money remains safe and secure.
“We told them there are no derivatives and we don’t leverage the fund’s assets, which is exactly the type of risky behavior that led to the problems on the West Coast,” said Eric Fehrnstrom, assistant treasurer for Massachusetts.
Officials in Humboldt County in Northern California, about to issue a bond for a jail, estimate that they’ll have to pay $50,000 more now in bond insurance because of the fallout from Orange County’s disaster.
In Texas, the day’s withdrawals totaled more than 19% of TexPool’s assets as state Treasurer Martha Whitehead sought to reassure the pool’s governmental investors that the fund is sound and unrelated to the troubled investments in Orange County.
“We met our commitments to TexPool members today,” Whitehead said. “We’ll make those commitments tomorrow, next week, next month--whenever a TexPool participant seeks to make a withdrawal.”
TexPool is a 4-year-old investment fund run by the state treasury. It serves 1,300 school districts, cities, counties and other local government bodies in the state by investing their tax revenues and paying them a rate of return.
The pool was created in 1990 to give smaller governmental units access to the same kind of money-management services large cities have used.
Only $15 million was deposited in the fund Monday, making the net drop $640 million. On Friday, withdrawals totaled $348 million and deposits $42 million, for a net drop of $306 million.
The pool had total assets of $3.6 billion before Friday. As of Monday afternoon, that total was down to about $2.7 billion, said Monte Williams, a spokesman for the treasurer.
