State’s portfolio OK, officials say

Oct 1, 2008

Retirement fund surplus ‘a pleasant surprise’

By Bill Cotterell
Tallahassee Democrat–October 1, 2008

The state’s top financial managers told Gov. Charlie Crist and the Cabinet on Tuesday that Florida’s diversified investment portfolio is in good shape, despite the crisis on Wall Street.

But a Big Bend congressman who voted for the ill-fated federal rescue plan said the public needs to stop viewing it as a life raft for wealthy corporate officers. U.S. Rep. Allen Boyd, D-Monticello, said unemployment will rise if the economy remains stalled and that a revised plan can assure reimbursement of the Treasury when the crisis passes.

Former state Comptroller Bob Milligan, who oversees state investments as director of the State Board of Administration, told Crist and the Cabinet that it was “really kind of a pleasant surprise” to find an $8.7 billion surplus in the state’s retirement pot as of July 1. Milligan said the figures are preliminary, but that assets stood a healthy 7.1 percent ahead of projected liabilities — and that the Florida Retirement System is designed to absorb market shocks.

SBA spokesman Dennis MacKee said the pension fund’s investments stood at about $125 billion at the start of the fiscal year. He said other big state-run funds, like the Lawton Chiles Endowment, local government investment pool, hurricane catastrophe fund and some 30 smaller plans are also in good shape.

Milligan said that “after a very tumultuous year,” Florida’s pension pot remains sound.

“It is not really good news; obviously, the last three months have not been particularly worthwhile and who knows what the effect may be over this next year?” Milligan said. “But clearly the policy that we’ve put in place enables us to withstand down times and obviously benefit from up times.”

Ben Watkins, director of the Division of Bond Finance, said municipal borrowing is essentially “frozen” because of market conditions. He said the short-term variable rate rose from 1.5 or 2 percent two weeks ago to 5 percent and hit 8 percent last week.

“It’s not an acute situation for us currently but it will be if this persists, the problem persists, for an extended period of time,” Watkins said.

Watkins told Crist and the Cabinet that if the freeze lasts long “we will be challenged” to fund school construction, highways and environmentally sensitive land acquisitions with bonds.

“I’m hopeful and looking for a solution, hopefully from Washington, to provide some stability to our markets,” said Watkins.

Boyd said the aim of the failed package was to free financial markets from “toxic” debt so Americans can get affordable home loans and businesses can borrow to expand. Without action, he said, the economy will continue to stagnate and unemployment will rise.

“There’s no intention in this legislation to bail out anybody’s losses,” said Boyd. “It would remove illiquid assets out of the portfolios of lenders so they can put more money back into the economy.”

Monday’s market plunge of 777 points, which saw stocks lose $1.2 trillion in value in a single day, is a signal of trouble, he said.

“The most important thing that has to happen in the next few weeks is for the public to understand the consequences of inaction,” Boyd said.