In retrospect, losing $155 million of public funds in a single day was like a bad hit to the immune system. Alone, it wasn’t enough to kill the patient, but it sure didn’t help when the patient caught a bad flu right afterward.
Nearly three years after San Mateo County took the biggest hit from the collapse of Lehman Brothers of any municipality in the nation, financial leaders on the Peninsula say the loss is still being felt, especially in the county’s school districts.
Such is the legacy of the San Mateo County Investment Pool’s massive loss in the Lehman Brothers bankruptcy. The failure of the massive financial services firm in September 2008 wiped away 7 percent of the pool’s fund overnight — money that school districts, public transit agencies and county departments had placed in the care of the county treasurer.
Some of the lost money had been targeted toward specific programs or building projects, but much of it was simply reserve money set aside for a rainy day — which unfortunately went missing just at the start of a long, long downpour.
In some cases, it meant buildings not being renovated, or programs being closed. But in many cases, it simply meant not having the extra reserves to be able to weather the budget collapse that came right afterward.
“The lasting legacy of the Lehman Brothers loss for the school districts is the dollars that were lost, they have not had to serve their students,” said Anne Campbell, county superintendent of schools. “This gets added on top of an abysmal financial situation. It was a double whammy.”
Jefferson Elementary School District lost about $1 million of their $10 million in reserve cash. While that loss wasn’t enough to break the district’s banks, it makes the district more wary of the estimated $800,000 deficit they are expecting next year.
“It gives us a little less of a cushion,” district superintendent Matteo Rizzo said.
The situation is more dire for San Bruno Park School District, which lost about $800,000 in the Lehman Brothers collapse. That money represented a large portion of the district’s approximately $2 million in reserves.
“You may have heard people say that these days, cash is king. So if you don’t have cash, you’re definitely put at a disadvantage,” said David Hutt, superintendent of San Bruno Park School District. “It’s made us more vulnerable.”
The end of the Lehman Brothers’ story has not yet been written: The county is still suing to recover some of its money from the Lehman Brothers estate, in the largest bankruptcy case in American history. That case is not likely to wind up until at least the end of 2011.
Meanwhile, the dozen school districts that lost money in the bad investment have sued the county and its former treasurer, Lee Buffington, alleging the county violated state code and its fiduciary duty when it invested so much of its fund into a single company.
Last week, the Board of Supervisors approved a new investment policy — the first the board has approved since before Lehman — that strictly prohibits that lack of diversity and imposes a far more conservative standard for all investments.
However the cases wind up, it’s clear that the ramifications of the loss will continue to be felt across the county. County spokesman Marshall Wilson said the county lost about $37 million — a significant hit, even with a reserve of $200 million.
“It’s not like if we didn’t have that loss, everything was going to be OK,” Wilson said. “But certainly if we didn’t have the losses in Lehman we’d all be in a better position. It compounded all other the problems and made everything worse.”