Lauderhill, FL Mayor Richard Kaplan On The State Run Investment Pool

Thursday, December 06, 2007

JEFF YASTINE: Florida's state-run investment pool for local governments re- opened today. It was shut down last week after a run by nervous investors worried about the pool's investment in sub-prime loans. Today, investors wasted no time taking out their cash. More than $1 billion was withdrawn. The fund manages money for state school districts and local government and functions like a money market account. The south Florida city of Lauderhill, population 60,000 managed to withdraw much of its money in the months before the sub-prime crisis hit. I sat down with Lauderhill Mayor Richard Kaplan today and began by asking about how the fund's sudden closing last week affected officials like himself.

MAYOR RICHARD KAPLAN, LAUDERHILL, FL: It's disconcerting. We try to take whatever available cash we have and invest it so that we can get as high a return as possible. The higher return that we get, the lower we can keep our taxes because they're going for services. We have to keep our money liquid so that as we have salaries or whatever expenses, we can draw on that money quickly. And they were offering a very good product at a very high interest rate for us. The problem is that we have to make sure that money is secure because we can't take any risk on it and we determined some months ago that it potentially was becoming risky and that is why we drew it out. And I can't imagine any city that is in the fund right now is probably has some concern of it.

YASTINE: Now that Blackrock is in charge of managing this Florida investment pool for municipalities and other taxing districts, do you think that the city of Lauderhill would consider putting money back into that pool?

KAPLAN: I'm not exactly sure. I believe what we have done is we have moved most of that fund into U.S. government securities at this particular point. Moving money into it right now, I don't think that we are going to do. Over time we will see how it develops. I believe that fund will sustain itself. It will continue on. But it has to build back up the confidence level. I'm not sure that every city right now has that confidence level. There are some cities that will not be able to draw out as much money out of the account as necessarily as they want. And that probably gives them great concerns and heartburn.

YASTINE: The city of Lauderhill is not unaffected by this ongoing crisis regarding foreclosures. And this city certainly had its share. Now we had the White House today which unveiled its own plan to help homeowners who are most at risk of losing their homes to foreclosure. Do you think that that plan will help people here in this city?

KAPLAN: I believe that is a good first step and it is only a first step because our estimation is that it may help somewhere between 20 and 30 percent of those out there impacted by the sub-prime problem and adjustable rate mortgage problem that is out there. There still remains 70 percent of those on the market that it is still an issue. And there is a lot more that we can do and we've been working on that.

YASTINE: Is the city seeing an impact yet of these foreclosures on the way of homes that are closed down and boarded up or in a loss of tax revenues?

KAPLAN: We're just starting to see it. And we're just trying to figure out to what extent the problem exists. I can tell you that right now in Florida there's approximately 130,000 properties in foreclosure. We have the second largest in the United States; California is higher than us. We know that there will be implications not just with property tax, but with sales tax and with documentary stamp tax. These all impact cities. And it is a budgeting issue that we are going to have to deal with.

YASTINE: Do you think of city of Lauderhill has seen the worst of the foreclosure crisis now, through this past year or do you think really the worst of it is still ahead as we go into 2008?

KAPLAN: I don't think anyone has seen the worst yet. We're expecting the peak of these defaults to occur May of next year. The triggers on these sub-primes and adjustable mortgages really start occurring more next year and even into something -- into 2009. How much we can cushion it by actions by the White House and the lending groups and even Wall Street, because they are a major player in this as well, will determine how big of an impact it will have. But revenues that we collect use numbers that are somewhat deferred. So we're working over -- we're using monies from last year. We haven't got to the next year so we won't know some of the impact until the end of 2008. And then I would expect to be pretty good impact in 2009. Recovery, we're hoping 2009/2010 at this point if things are properly dealt with right now, timely.

YASTINE: Mayor Richard Kaplan of Lauderhill, thank you.

KAPLAN: Thank you.