House banking chair agrees to hearings

Massachusetts Congressman Barney Frank, who chairs the House financial services committee, agreed to hold hearings on whether to use federal bank bailout funds to restore the money lost by cities, counties, school districts and other public entities in the collapse of Lehman Brothers, Congresswoman Anna Eshoo said Thursday.

The Wall Street investment bank took more than $155 million in San Mateo County taxpayers’ money with it when it went under last September. In November 2008, San Mateo County filed a lawsuit against Lehman executives, alleging the bank deceived investors as to its solvency. Eshoo said she was pleased and hopeful about the planned hearings, but her expectations remain realistic in this grim economic climate. "I don’t think for a moment that all the funds will be recouped,” she said. "But it will put a big spotlight on the issue.”

Eshoo arranged a meeting in Washington, D.C. on Tuesday between Frank and visiting officials from San Mateo County. Congresswoman Jackie Speier, who sits on the financial services committee, also attended. The hearings are tentatively scheduled for April or May, but other details such as who will testify have not been set.

Losing this money was a major blow to local cities and schools already suffering from a cash-strapped state government and a recession. According to the lawsuit filed by the county investment pool, losses included $37 million from San Mateo County schools and $22 million from the San Mateo County Transportation Authority.

Eshoo said the $150 million loss would be a "miniscule” portion of the Troubled Asset Relief Program, or TARP. On a local level these funds are critical to pay for teachers, transit projects and county services.

Mary McMillan, San Mateo County’s deputy county manager, presented much of the data regarding the county’s financial losses in the meeting with Frank. In the meeting, McMillan said she explained why public entities deserve bailout funds when so many other people lost money as well. State law says public entities can invest only in more conservative financial products, like secured treasury bonds.

"These were secured bonds,” she said of the county investments. "It wasn’t speculative. This is different than if we had stocks in Lehman Brothers, for example.”

McMillan said the losses suffered by the San Mateo County Community College District particularly illustrated her argument. The district lost $25 million in construction bond funds. Residents, however must continue paying off these bonds, even though the money has evaporated and no new facilities will be built.

"That argument was not lost on any member of Congress,” she said.

To prepare for the hearings, McMillan said her office will analyze the county’s losses, and how an investment of federal money would see a return in the form of jobs and more residents paying taxes and putting money back into the economy. She expects the hearing will include testimony from some of the San Mateo County entities that lost money.

While Eshoo has pursued this issue to help her hometown constituents, San Mateo County is not alone in losing public money from Lehman’s demise. Along with other entities in California, Sarasota County, Florida, Mohave County in Arizona, the Massachusetts State College Building Authority and Michigan State University also lost money, according to the county treasurer’s office.

Having hearings does not guarantee any recompense, but Eshoo said municipalities and school districts could see a better rate of return than the 5 to 6 cents per dollar typical to cases in bankruptcy court.

Last year, Eshoo said she worked with Frank to insert language in the original bailout bill allowing the use of these funds for public entities, knowing that San Mateo County was sustaining huge losses from Lehman’s demise.

"These are not bragging rights,” she said. "If the language were not in the bill I don’t think we would have a leg to stand on.”

Frank’s staff could not be immediately reached for comment.