Fla. Fund’s Woes Spark Investment Jitters

Problems in one state likely to prompt renewed scrutiny of similar pools.

The crisis swirling around a state-run investment fund in Florida has escalated concerns among public-finance officials there and elsewhere about the investments of school districts and other public entities against a national backdrop of credit and home-mortgage woes.

Florida officials reopened the state’s Local Government Investment Pool last week, but placed restrictions on how much school districts and other government agencies will be able to withdraw from the fund. The Florida State Board of Administration had temporarily closed the fund Nov. 29, severely hindering some districts’ ability to pay their employees.

The shutdown came after several districts, cities, and other government entities—acting on reports that certain investments in the pool had been downgraded—withdrew their money in what one district business manager described as a “1920s-style scare.” As a result of the withdrawals, assets of public entities in the fund plummeted to $14 billion, from $27 billion. ( "Florida Will Consider Methods of Protecting Local Investment Fund," ...