Lehman failure being felt locally
The bankruptcy of Lehman Brothers Holdings LLC has wiped out almost $150 million from a $2.7 billion San Mateo County investment pool, which means several local school districts could take financial hits in coming weeks.
County Treasurer and Tax Collector Lee Buffington met with government officials Friday to spread the bad news. The only option, Buffington said, is to spread out the loss.
“There are no easy answers,” Buffington said. “But everyone has got to pay their share. We have to be fair.”
With a roughly $400 million investment, the San Mateo County Community College District is taking the biggest hit — roughly $25 million. The Sequoia Union High School District follows, facing a loss of about $5.5 million, based on its $110 million share in the pool. And the San Mateo Union High School District could lose roughly $4.5 million based on its $91 million share.
Those agencies are followed by some smaller K-8 school districts. With about $70 million in the pool, for example, the Menlo Park City School District is expected to lose about $3.5 million. The Redwood City Elementary School District has about $22 million invested and will lose about $1.1 million. The Ravenswood City School District, which has about $13 million in the pool, stands to lose about $681,000. And the San Carlos School district is looking at a $639,000 loss, based on its $12 million share.
“These are all estimates,” Buffington said. “Some recent earnings could change this, but not by much.”
After weighing a handful of choices, Buffington said the county is planning to mark all Lehman Brothers bonds down to zero and place them into a separate account as a non-producing asset. After that, the county and its investors can only hope to gain something back from bankruptcy proceedings and possibly watch the stocks eventually rise, Buffington said.
The county plans to meet with investors before next week to discuss the looming reduction in value. School districts are required to invest in the county treasury, but Buffington said each investing district or agency can choose which accounts to pull money from to make up for the loss. Much of the school district money comes from bond sales and parcel taxes.
In the short-term, the loss likely will not affect day-to-day operations of the investing school districts. But in the long run that could change. Sequoia Superintendent Patrick Gemma said, for example, that over the next five years his district will simply have less money for capital projects. But in that same time period, Sequoia will earn about the same amount in interest per year on its remaining treasury balance as the expected loss this year.
“It’s bad news, but the sun will come up tomorrow,” Gemma said.
Sequoia sold about $70 million in bonds in February, all of which went to the treasury pool.
Menlo’s superintendent, Kenneth Ranella, said he would like the county to consider “special circumstances” when handing down the loss. Like Sequoia, Menlo this year made a large deposit — $30 million — into the pool after selling bonds. But the deposit came just a couple of months ago, so the district did not have a chance to earn interest on the $30 million before Lehman folded. Also, none of that money was invested in Lehman bonds, Ranella said.
So instead of being hit with a loss based on a 1.6 percent share of the total pool, which Menlo has had for the past two years, Ranella said he’s concerned the county is placing too much value on the district’s recent investment.
“The timing was just terrible,” Ranella said. “We would like to see the county look at how the loss is distributed based on special circumstances.”
The global investment bank filed for Chapter 11 bankruptcy protection in federal court Sept. 15 and has since seen the value of its stocks and bonds plummet. On Tuesday, Lehman shares closed at 22 cents. The value of its bonds, which affect San Mateo County, closed lower at .135 cents, Buffington said.
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