The financial uncertainty on Wall Street is hitting home for hundreds of Colorado school districts, cities and other local governments.
No one is panicking yet — or even seriously worried — because the money that 360 local governments have invested in a multibillion-dollar privately managed fund is not threatened. But the bumpy ride the Colorado Surplus Asset Fund Trust — known as CSAFE — has taken over the past couple of weeks has school administrators and bean counters in city halls carefully watching the financial markets.
“I fully anticipate this issue will be resolved,” said state Treasurer Cary Kennedy, whose office also is keeping a close eye on the issue, “but if the illiquidity in the credit markets is prolonged, we could see some local districts unable to meet their cash-flow needs.”
Formed in 1988, CSAFE is one of the state’s “local government investment pools,” large investment funds that act as money-market checking accounts for government entities ranging from school and water districts to cities.
These local investment funds, in turn, typically have had large sums invested in national and international money-market funds, long regarded as virtually bulletproof places to park money. For CSAFE, that’s where the problems started last week.
CSAFE, which had been valued at more than $2 billion, had about $1 billion invested in three major money-market funds. Two of the money-market funds were closed down last week after experiencing unusually high withdrawals, while a third held a significant amount of commercial paper from Lehman Brothers, an investment house that has gone belly up.
Taking precautions
With so much money tied to money-market funds that were at least temporarily in limbo, the CSAFE board last weekend voted to restrict withdrawals to no more than 5 percent per day of 47 percent of a local government’s assets in the fund.
The board also allowed fund administrators to approve special requests that exceed the 5 percent limit. And CSAFE hired Phil Feigin, a former state securities commissioner and an attorney, as the problems developed last weekend.
Feigin said local governments invested in the fund are remaining calm, so far.
He added, though, that there have been some requests granted to exceed the 5 percent cap.
Kennedy, state financial regulators and CSAFE officials all say there is no danger of local governments losing money in the fund; it’s just a matter of when cash will be fully available. They are hoping the federal government will move forward on a plan to back up money-market funds, which would calm investors and allow for an orderly liquidation of troubled funds.
If that doesn’t happen soon, though, it could ultimately produce cash-flow problems for local governments. If that happens to school districts — which typically have cash reserves anyway — the state can provide interest-free loans to them.
The state regularly issues such loans to help school districts struggling with cash-flow needs, loaning $460 million to districts last year.
The city of Denver has about $22 million invested in CSAFE, about 1 percent of its investment portfolio.
Bob Gibson, the city’s director of financial management, said the city has its money invested in many places and doesn’t expect any cash-flow problems. Still, city officials have been in close contact with CSAFE fund managers.
“The money we have with them is not needed for city liquidity purposes, and we’re able to abide by their new rules to access funds,” Gibson said.
DPS sees no problems
Denver Public Schools has some $8 million invested in CSAFE, said Tom Boasberg, chief operating officer for the district, which has a $500 million operating budget.
“I’m not perceiving a real material effect at this point,” Boasberg said.
Wes LaVanchy, administrator of the town of Firestone and a member of the CSAFE board of directors, said much the same. He estimated his city has close to $7 million invested in the fund.
“There’s certainly some questions about how the market turmoil is going to affect CSAFE,” LaVanchy said, “but the feedback I’ve gotten so far is people are willing to allow this thing to play out and are confident in CSAFE’s management.”
Tim Hoover: 303-954-1626 or thoover@denverpost.com
