John A. Crawford Clerk of the Court

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

2. 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 . . . .”

3. CLERK RESPONSIBILITES Investment Objectives Resolution No. 95-144, Section II (A) “The primary objective of the investment activities is the protection of County Funds.”

4. CLERK RESPONSIBILITES Investment Objectives Resolution No. 95-144, Section II (B) “The investment strategy will provide sufficient liquidity to meet the County’s operating, payroll, and capital requirements”

5. CLERK RESPONSIBILITES Investment Objectives 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”

6. CLERK RESPONSIBILITES Investment Objectives 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”

7. SBA Investment Pool Crisis

8. SBA Investment Pool CrisisSBA 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

9. 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

10. SBA Investment Pool Crisis What Happened? SBANov. 9, 2007Report: 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

11. SBA Investment Pool Crisis What Happened? “ 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

12. SBA Investment Pool Crisis What Happened?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)

13. SBA Investment Pool Crisis What Happened? “Neither the newsletter nor Stipanovich’s testimony disclosed that the pool owns $650 million of certificates of deposit from Countywide FSB, a unit of Countrywide Financial Corp., that now amounts to more than 3 percent of the pool’s assets. The bank’s rating was to cut Baal, three levels above junk, by Moodys’ on August 16.” Source: David Evans, Bloomberg.Com

14. SBA Investment Pool Crisis What Happened? 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.” Source: David Evans, Bloomberg.Com

15. SBA Investment Pool Crisis What Happened? “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,” Source: David Evans, Bloomberg.Com

16. SBA Investment Pool CrisisBloomberg 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.'' Source: David Evans, Bloomberg.Com

17. WHO MANAGES SBA?

18. Who Manages SBA?

19. 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%

20. SBA Investment Pool CrisisWhat 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

21. SBA Investment Pool CrisisWhat 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

22. SBA Investment Pool CrisisCurrent 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

23. SBA Investment Pool CrisisComparative Cash Position Cash On Hand 2004Current • SBA $ 22.0m $ 55.6m • Banks $ 14.3m $ 22.3m Total $ 36.3m $ 77.9m Note: All funds; restricted and unrestricted

24. SBA Investment Pool CrisisUnknowns 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?

25. SBA Investment Pool CrisisOptions 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

26. SBA Investment Pool CrisisSummary 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.

27. 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.

28. 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.

29. SBA Investment Pool Crisis