Unfreezing Florida Funds

Florida's state-run cash management fund is supposed to be safe and liquid. Instead, they have been investing in SIVs. With the credit turmoil, even the prime stuff is hard to sell. The fund has as much as 14% in "distressed" fund.

The schools which had the money in the fund don't have the money to pay salaries or pay for the electricity.

They might split securities and sell the prime securities first. But even the prime securities would have to be at a loss.

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Solutions won't come easily. BlackRock officials said the fund could have trouble selling even its best-quality assets, given recent turmoil in bond markets. They proposed splitting the fund's $14 billion in assets into a "high-quality" fund and a "distressed" fund. The latter would include about 14% of the fund's total assets.

"I'm hoping that the electric company won't cut off the lights to our school," says Hal Wilson, chief financial officer for the Jefferson County school district, which had money in the fund. "We'd really be in a bind."

"We're starting to realize how pervasive these assets were," says David Watts, an analyst for CreditSights, an independent research firm. "When you package these securities they end up in all sorts of places you wouldn't have expected."

"We relied on the continued assurances from state officials that the fund was safe," Mr. Wilson says. "We're a small county; we can't call on outside money managers to assess the situation."

These officials also said they were looking for a creditor that might offer loans to government and school officials and use the fund's high-quality holdings as collateral. Some investors urged them to turn to the state's $137 billion pension fund to be that lender. But BlackRock officials suggested the pension fund wasn't an appropriate vehicle for that role.