Financial fallout takes $5 million from local coffers

By JoAn Bjarko
North Forty News

The nation's economic woes hit home hard on Sept. 17 when Wellington, Poudre School District, Larimer County and 62 other tax-supported groups learned that collectively they had lost $5 million on their investments.

Precipitated by the bankruptcy filing of the 158-year-old securities firm Lehman Brothers, a local government investment pool called Colorado Diversified Trust dissolved when its rating nosedived on Sept. 16. CDT quickly transferred its assets to COLOTRUST (Colorado Local Government Liquid Asset Trust) to maintain the Triple-A rating on the remaining pooled investments of its customers.

Prior to the transfer, CDT's portfolio included an approximate $5 million Lehman Brothers commercial paper holding with a maturity date of Oct. 10. The investment represented 1.8 percent of CDT's assets of $275 million.

At this time, the Lehman Brothers investment is lost. Several of the local government financial heads said in recent interviews, however, they hold on to hope of recouping some of the loss at the end of the bankruptcy proceedings because the money was invested in commercial paper, not in stocks.

Mike Cummins, Wellington's finance director, said COLOTRUST now holds the Lehman investment in a separate account and all previous CDT customers will participate pro rata in any eventual recovery.

Losses of interest to northern Larimer County taxpayers follow. The local government groups contacted also provided interest earnings from the CDT account, which appear in parentheses.

• Poudre School District, $1.26 million loss (last fiscal year interest earned $2.2 million)
• Larimer County, $641,322 loss (year-to-date interest income $845,000)
• Town of Wellington, $168,443 loss (YTD interest income $209,364)
• Health District of Northern Larimer County, $103,000 loss (YTD interest income $99,625)
• City of Fort Collins, $48,000 loss, which includes about $1,000 from the Fort Collins Regional Library District fund. City Finance Director Chuck Seest said the CDT account was used to earn interest on the checking account balance to offset bank fees from First National Bank.
• Poudre Valley Fire Protection District, $36,793 loss (YTD interest income $18,631)

No other northern Larimer County fire districts contacted by the North Forty News had investments in CDT. A spokeswoman for Colorado State University also said that institution had no investments in CDT.

The town of Wellington had about $9.5 million invested in CDT out of total investments and deposits of $12.2 million, Cummins said. "This will not affect any of Wellington's cash flow needs near term or long term," he said.

The Wellington Town Board on Sept. 23 directed Cummins to move the town's investments into the less risky of the two fund options at COLOTRUST.

First National Bank, the investment advisor and custodian for CDT, said in a press release that the investment pool was independent of the bank and the transfer of assets will have no effect on the bank's consumer or commercial banking operations.

Speaking for Poudre School District, Jim Sarchet, assistant superintendent of business services, said the loss will be charged against the district's $10.5 million contingency fund set aside for emergencies. "PSD has funds to meet all financial obligations," he said.

Larimer County Treasurer Myrna Rodenberger noted that the county made more money in interest on the CDT account this year than it lost. The county had several accounts with CDT, totaling about $33 million, she said. The difference between interest earned on all accounts and the loss is a positive $204,000, she added.

To further explain how local governments use investment pools, PSD budget manager Dave Montoya said the district's portfolio ranged from $122 million in July 2007, when property tax collection peaked, to $57 million in February 2008. On Sept. 17, the district had investments of $100 million. Large expenses include a monthly payroll of $12 million and an upcoming Dec. 15 bond payment of $21 million. PSD also self-insures for health coverage and maintains a $15 million health fund.

COLOTRUST is the original and largest pooled investment trust in the state. The fund that received the CDT accounts has $3.5 billion in assets. A subsidiary of MBIA Asset Management serves as the investment advisor and administrator.