Joint Auditing Committee Legislators Question LGIP Red Flags

On Monday, January 7, 2008, the Florida Joint Legislative Auditing Committee (“Committee”) met in Tallahassee, Florida.  Among other items discussed today were recent issues with the State Board of Administration (“SBA”) Local Government Investment Pool (“LGIP” or “pool”). 

To view the Committee meeting packet, click here.

Committee Co-Chair Representative Carl Domino (R-Juno Beach) opened the meeting and expressed his concerns about how the fund has been operating.  Primarily, he noted problems with communications and that LGIP members were not properly informed of losses in the pool.

Next, SBA Interim Executive Director General Bob Milligan, provided a review of the pool’s recent history and current status, including the LGIP’s temporary freeze in December 2007, and the retainer of BlackRock to provide recommendations as to how the pool should operate.  The SBA is currently accepting bids by private companies to oversee the future activities of the SBA.  General Milligan noted that the SBA will fully support the review and analysis of the Committee.

Several Committee members posed various questions to the speakers that followed.  For example, Representative Gayle Harrell (R-Port St. Lucie) expressed concerns that a city in her district placed $134 million in the pool just before it was frozen, and that representatives of the SBA informed her city manager that the pool was in good condition. 

Representative Susan Bucher (D-West Palm Beach) expressed concerns about the ability of the SBA to adequately oversee the state retirement fund.  General Milligan asked for time to thoroughly review all the programs under the purview of the SBA and stated that he would provide an answer in the future. 

Senator Jeremy Ring (D-Margate) asked about the return on the LGIP.  Overall, the return has been about 5.5% or very good, according to General Milligan.  Senator Ring also stated he is not willing to place blame on the SBA at this time.  

Next, Jim Cassidy, Chief of Staff for Chief Financial Officer Alex Sink, addressed the Committee about the overall activities of the market at the time the LGIP was frozen.  He noted that there is always liquidity risk when short-term deposits are invested in long-term investments.  Thus, a “run” on the LGIP is always possible, thereby having resulted in the recent scenario where the LGIP could not pay out all of the withdrawal requests.   He noted that problems in the market were primarily driven by recent heavy losses in the sub-prime industry.  Also, Mr. Cassidy referenced a Bloomberg article highlighting problems in the market that was released immediately prior to the major withdrawals from the LGIP.   He stopped short of saying that article caused the problems in the LGIP. 

Mr. Cassidy was queried by the Committee.  Several questions addressed  “red flags” that should have been apparent based on the market conditions leading up to the freeze, and why the SBA did not anticipate the problems and deal with them before having to freeze the LGIP.  He responded by saying that the CFO and SBA are aware of deficiencies in the handling of the pool, but could not address specific issues at this time. 

Senator Rhonda Storms (R-Brandon) raised concerns about the accountability of the elected officials overseeing the LGIP.  Mr. Cassidy noted that the audit report should provide details about any accountability breakdowns that occurred.

Melinda Miguel, the Chief Inspector General for Governor Charlie Crist and Chair of the SBA Audit Committee addressed the Legislators.  She noted that the Audit Committee is considering the questions previously offered to it by Florida Chief Financial Officer Alex Sink.  She also stressed the independence of the Audit Committee’s report.  The Committee members responded that they are not getting the answers that they are looking for.

Based upon the discussions during the meeting, the Committee may need additional information to address its concerns.  It also is keenly interested in the forthcoming Audit Committee report.

The Committee is comprised of:

House Members:

Alternating Chair: Representative Carl Domino (R)

Representative Susan Bucher (D)
Representative Jim Frishe (R)
Representative Gayle B. Harrell (R)

Senate Members:

Alternating Chair: Senator Gwen Margolis (D)

Senator Mike Haridopolos (R)
Senator Jeremy Ring (D)
Senator Ronda Storms (R)
Senator Stephen R. Wise (R) 
   

Should you have any questions or comments, please do not hesitate to contact this office.

 

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