John A. Crawford Clerk of the Court Nassau County Board of County Commissioners Special Meeting December 7, 2008 SBA Investment Pool Crisis

John A. CrawfordClerk of the Court

Nassau County Board of County Commissioners

Special MeetingDecember 7, 2008

SBA Investment Pool Crisis

CLERK RESPONSIBILITES

Florida Statutes 28.33 – “The clerk of the circuit court in each

county shall invest county funds in excess of those required to meet

expenses . . . .”

CLERK RESPONSIBILITES Investment Objectives

Resolution No. 95-144, Section II (A)

“The primary objective of the investment activities is the protection of County

Funds.”


Resolution No. 95-144, Section II (B)

“The investment strategy will provide sufficient liquidity to meet the County’s

operating, payroll, and capital requirements”


Resolution No. 95-144, Section II (D)

“The Clerk will set procedures to properly diversify the investment portfolio and minimize the inherent risk associated

with investment portfolios”


Resolution No. 95-144, Section II (C)

“When investing public funds, the Clerk of Circuit Court (Clerk) will strive to

maximize the return on the portfolio, while minimizing investment risk”


SBA Investment Pool Crisis SBA Mission Statement

“ The SBA is committed to providing superior investment and trust services while adhering to the highest ethical, fiduciary, and

professional standards. ”

Source: WWW.SBAFLA.COM

SBA Investment Pool Crisis What Happened?

Nov. 14, 2007 - Bloomberg News report reveals:

“Florida Holds $2.2 Billion of Debt Cut to Junk Status”Portion of securities held by SBA in distress or default

“Sub-Prime Mortgage” investments infecting SBA holdings.

Source: David Evans, Bloomberg.com


SBA Nov. 9, 2007 Report: Update on Sub-Prime Mortgage Meltdown and State Board of Administration Investments

“No client of the SBA has ever lost money in a short-term portfolio, and we remain confident that our portfolios will continue to provide stable returns for clients with

an emphasis on safety and liquidity of principal.”

Source: David Evans, Bloomberg.com


“ They are supposed to offer daily liquidity for the public sector in much the same way that

money-market funds do for the private sector. They are supposed to invest their

clients’ money in the safest possible securities, good old boring things like U.S.

Treasuries, top-rated commercial paper and certificates of deposit ”

Source: Joe Mysak, Bloomberg.Com


BLOOMBERG NEWS

“Florida rules require the state's short-term investments to only be top-rated, liquid securities, so taxpayer funds aren't

placed at risk. The data from Florida shows how far the effects of the bursting of the housing bubble are being felt

as complex investment vehicles once marketed as high-yielding safe havens are now backed by collateral shunned by

investors.“

By William Selway and David Evans

Florida Holds $2.2 Billion of Debt Cut to Junk Status (Update7)


“Neither the newsletter nor Stipanovich’stestimony disclosed that the pool owns $650million of certificates of deposit fromCountywide FSB, a unit of Countrywide FinancialCorp., that now amounts to more than 3 percentof the pool’s assets. The bank’s rating was tocut Baal, three levels above junk, by Moodys’ on August16.”

Source: David Evans, Bloomberg.Com


Joseph Mason, professor of finance at Drexel University states, “ while the State of Florida has a moral duty to cover any losses suffered by the pool participants, its own shaky finances will make that difficult. The fourth most-populous state, hurt by the housing slump, cut its revenue projections by 3.9 percent for the fiscal

year ending June 30, and 5.2 percent for the following year.”



“the state appears to have breached the trust of the investors by putting money in

new kinds of debt its managers didn’t understand, in their search for higher

yields,”


SBA Investment Pool Crisis Bloomberg News

‘Seat-of-the-Pants'

``Investment of public money needs to be carefully conducted and thoroughly researched,'' said Harvey

Pitt, former chairman of the U.S. Securities and Exchange Commission.

``This is not the place for seat-of-the-pants judgments. It requires a lot more than jumping on the latest investment du jour to improve your results.''


WHO MANAGES SBA?

Who Manages SBA?

What Happened

Nov 9th – 28th: $13,000,000,000 “Run on the SBA bank”

Nov 29th: SBA Trustees implement temporary freeze on LGIP assets.

Dec. 4th: SBA Trustees voted to Spilt $14B LGIP funds into: Fund A – High Grade Investments $12 billion or – 86% - allows 15% or $2 million draw down. Fund B – assets in default, impaired, credit risk. $2 billion or 14%

SBA Investment Pool Crisis What does this mean for Nassau County???

Current Investment: $55.6 million Fund A (86%): $47.8 million Fund B (14%): $ 7.8 million

Withdrawal option Plan A (15% or $2 million): $ 8.1 million

SBA Investment Pool Crisis What does this mean for Nassau County???

Plan A options: Immediately request allowed 15% ($ 8.1 M) (Requested 12/6/07) Remainder has two options:

Upon a schedule TBD by Blackrock or 2% early redemption penalty

Plan B options: Unknown at this time

SBA Investment Pool Crisis Current Impact?

Cash on hand: $ 22.3 m Ad Valorem available*: $ 33.7 m 15% of Plan A: $ 8.1 m

Total for operational needs: $ 64.1 m

*collected through December ’07- 80% collected to date

SBA Investment Pool Crisis Comparative Cash Position

Cash On Hand

2004 Current SBA $ 22.0m $ 55.6m Banks $ 14.3m $ 22.3m

Total $ 36.3m $ 77.9m

Note: All funds; restricted and unrestricted

SBA Investment Pool Crisis Unknowns and Concerns

Inadequate reserves @ SBA? Questionable sub-prime investments? Will large county investors return to

SBA? Under what circumstances, if any,

would we return to the fund? What will be the bottom-line return on

Fund B?

SBA Investment Pool Crisis Options Under Consideration

Letter(s) to Gov/CFO/AG Letter to Auditor General Letter to Legislative Government

Oversight Committee Letter/meet local legislators Litigation-join other investors

SBA Investment Pool Crisis Summary Impact Nassau County

Risk Level- definitely increased Potential Loss– book probable;

actual? Liquidity- Ok for short-term Capital Projects – need solid

estimates and date specific timing for cash flows.

Debt Capacity – uncertainty exists.

SBA Investment Pool CrisisWhat is the next step?

The Clerk’s office will continue to monitor this issue that has been forced upon us by the SBA and its governing Board of Trustees.

We will keep the Board and the tax payers (press releases) informed as future events evolve in solving this issue.

SBA Investment Pool CrisisWhat is the next step?

We will continue to coordinate with the other 1,000 investors (entities) who are in the same “boat” as Nassau County in solving this issue.

We will continue to monitor the County’s cash flow needs for both operational and investment purposes.

We will continue to coordinate with the County Coordinator to ensure that budgetary issues are resolved.


Documents

John A. Crawford Clerk of the Court Nassau County Board of County Commissioners Special Meeting December 7, 2008 SBA Investment Pool Crisis