Schools come to terms with market loss

San Mateo County schools will lose an estimated $58 million as a result of losses from Lehman Brothers Securities and the San Mateo Community College District was hardest hit with $25 million in losses.

Now that school officials are coming to terms with the loss, determining the impact is next as the numbers are solidified as soon as next week.

The County Investment Fund is a pool of money from school districts, special districts and cities, managed by County Treasurer Lee Buffington. As first reported in the Daily Journal Sept. 23, the fund lost approximately $150 million, or approximately 5 percent of the $2.6 billion portfolio’s principal due in part to its holdings in Lehman Brothers Securities. Of those losses, an estimated $58 million will come from school districts, according to the County Office of Education. A majority of the money came from bonds.

Making up the largest portion of that loss will be the San Mateo County Community College District which had $500,000 million in the fund — $400 million from bonds. A 5 percent loss means about $25 million.

The college district issued all its bonds up front with the idea of using the interest to further the ability to build.

At this point, all numbers are estimates. The county is in the process of closing its books and will have exact numbers next week, said Buffington. Currently, the plan is to write the loss off to zero and deduct from each participant in the pool their share based on their daily balance as averaged through the first quarter. Buffington described the plan as the fairest to those involved.

The way the county deals with its Lehman holdings could require agencies to dip into their reserves. State law requires school districts to maintain a 3 percent reserve. A dip into the fund could mean districts fall below this minimum. School leaders will meet with the County Office of Education on Friday to begin to flush out the potential effects for individual districts, as well as ways to work together to lessen the impact, said County Superintendent Jean Holbrook.

The Sequoia Union High School District had about $107 million invested in the fund, equating to a possible $4.5 million to $5.5 million loss, said Superintendent Pat Gemma.

"It’s a significant hit but the sun is going to shine tomorrow,” said Gemma.

An estimated $91.6 million was invested by the San Mateo Union High School District equaling a loss of an estimated $4.5 million; $1.5 million to $2 million of which is from the general fund, said Deputy Superintendent of Business Services Elizabeth McManus. These losses do not include interest that could be generated from the investments. During the first quarter last year, for example, the district received $291,000 in interest from the fund. Those interest payments were used to pay down debt — an additional loss in the district.

Leaders in the Menlo Park City Elementary School District are facing about a $3.5 million loss from the $70 million it had invested, much of which was from recently approved bonds.

Smaller districts are also anticipating a loss: San Carlos Elementary School District invested $12.7 million and has $639,000 at risk; San Bruno Park Elementary School District faces an estimated $680,000 loss; and Redwood City Elementary School District is looking at a $1 million loss.

Of the loss, Chief Business Official Raul Parungao estimates $369,000 will be from the general fund, the rest will come from other areas.

"It is still $1 million away from the school district,” he said.

A little farther north, the South San Francisco Unified School District is facing an estimated $1.25 million loss from its $25 million investment, said Ronald Little, associate superintendent of business services.

For Little, the big question is the flexibility districts will have in distributing the loss, he asked, can it be paid over time or from a variety of funds?

Heather Murtagh can be reached by e-mail: heather@smdailyjournal.com or by phone: (650) 344-5200 ext. 105.