Tax losses ignite inquiry

County Treasurer Lee Buffington should explain to the public how the county investment fund works and how the Lehman Brother bankruptcy led to a $150 million loss to the cities, school districts and special agencies which contributed money, according to Supervisor Jerry Hill.

Hill asked the Board of Supervisors Tuesday to use its authority to request the publicly elected treasurer appear at the Nov. 4 meeting to answer previously submitted questions on the fund and recent financial upheaval.

The board has no authority to discipline or fire other elected officials but the county charter allows it a right akin to subpoena power.

"The primary purpose is to shed some light on the investment pool, how it works and with benefit of hindsight how it became ensnared in the Lehman Brothers bankruptcy,” Hill said.

Hill suggested County Counsel Mike Murphy develop a set of questions and submit them to Buffington ahead of the Nov. 4 meeting.

Buffington could not be reached to comment on whether he would have appeared before the board if simply asked rather than mandated.

The same day Buffington will be before the board, its Finance and Operations Committee will consider revamping the investment policy to prevent future losses.

Supervisor Mark Church, who chairs the committee, suggested it is equally important to "get a better handle on what happened to get us in the situation we’re in.”

The County Investment Fund involves 1,050 different accounts with some cities and districts having more than one fund invested.

The County Investment Fund had 5.9 percent of its $2.6 billion in Lehman Brothers, leading to a loss of just more than $150 million for investors. School districts have been particularly vocal about the impacts. Earlier in the same board meeting, for instance, Rob Gaskill of the Cabrillo Unified School District said it will lose $1.4 million, or the equivalent of about 25 teachers. The impact, he said, is "unthinkable at this point in time.”

County schools overall will lose $37.3 million, leading some education leaders to consider finding alternative investment options — which will require them to adopt an entirely different investment policy to avoid the state requirement to put investments in the county treasury.

Aside from the actual dollar losses, invested groups were angry at what they perceived as an initial lack of communication from Buffington to the cities, districts and agencies. Whether Buffington will be asked to address that at the upcoming board meeting is unclear.

Regardless of Buffington’s appearance, the finance committee has a laundry list of possible changes to its investment policy, including limiting the amounts invested from each issue of commercial paper and corporate bonds from 10 to 2 percent of the pool and hiring a third-party advisor to aid the Treasury Oversight Committee.

Church suggested the consultant also help in the process of querying Buffington.

Michelle Durand can be reached by e-mail: michelle@smdailyjournal.com or by phone: (650) 344-5200 ext. 102.