LB in line for bailout money?: CONGRESS: Bill from Sen. Feinstein may help city recoup investments lost in Lehman failure.
LONG BEACH, Jan 13, 2009 (Press-Telegram - McClatchy-Tribune Information Services via COMTEX) -- Sen. Dianne Feinstein has proposed legislation that could help Long Beach get back a $19.9 million investment it lost when Lehman Brothers Holdings Inc. went bankrupt last year.
At the opening of the 111th Congress last week, Feinstein, D-Calif., introduced S.116, known as the TARP (Troubled Assets Relief Program) Assistance for Local Governments Act of 2009. The bill would require the federal Treasury Department to reimburse up to $10billion to counties and cities for their losses from highly rated investments in failed financial institutions.
In September, the city of Long Beach invested $19.9million in short-term, 27-day commercial paper -- a common type of low-risk loan -- issued by Lehman Brothers. Twelve days later, Lehman Brothers filed for bankruptcy.
"The situation is urgent," Feinstein said in a statement posted on her Web site last week. "Twenty- eight California cities and counties are in jeopardy of losing nearly $300million as a result of investments with failed financial institutions. And dozens of others (sic) communities across the country face equally dire straits."
The $700billion Emergency Economic Stabilization Act of 2008 required the Treasury Secretary to consider the losses to local governments under the Troubled Assets Relief Program. However, to date the Secretary has not yet exercised his authority to assist local governments.
Feinstein's statement cites numbers from the League of
California Cities that Lehman Brothers' bankruptcy resulted in investment losses of $75.13million for California cities, $228.4million for California counties and $675million for state pension plans.
Lori Ann Farrell, Long Beach's director of financial management, said Monday that the legislation would help make Long Beach "whole" again.
"We invested in what was a highly rated investment, which the rating agency said was a highly rated investment, and before you knew it Lehman Brothers went bankrupt," Farrell said.
Farrell said Long Beach is asking for not only the original $19.9million investment, but also $100,000 in interest that the city had expected to earn from the investment.
If recovered, the lion's share of the money would go to the Port of Long Beach, which lost $11.6million from the initial $19.9million investment and the interest, Farrell said.
That money had been earmarked for several prominent programs, though whether it would be used in such a way hasn't yet been decided by the Harbor Commission, Farrell said.
Of the $11.6million, $3million was to go for the port's Clean Trucks Program and $3million was for solar energy projects, while other funding was to be used for programs related to security, cleaner fuels, vessel speed reduction, shoreside electricity and fiber optics networks, she said.
Almost $900,000 of the investment loss hit the city's general fund, which pays for basic services such as police, fire, libraries, street repairs, and parks and recreation, Farrell said.
Getting the money back would put some much-needed cash into the city's coffers. The general fund is facing a $15.7million deficit in the current fiscal year, and Farrell said the recovered money would help cushion the blow from planned cuts.
Much of the remaining money from the $19.9million had been planned for infrastructure, Farrell said.
Long Beach had already hired bankruptcy attorneys to get the city's share of the Lehman Brothers bankruptcy estate. If Feinstein's bill passes and Long Beach recovers its losses, the Treasury Department would assume the city's position in bankruptcy court, Farrell said.
She said taxpayers already had footed the bill for the $700billion federal bailout approved by Congress last year, and now it's time for Long Beach and other cities to get a piece.
"This is guaranteeing that some of this comes back to your local community," Farrell said.
paul.eakins@presstelegram.com, 562-499-1278
LOCAL GOVERNMENT BAILOUT FIGURES
$10 billion -- Maximum amount that Sen. Dianne Feinstein wants the Treasury Department to dispense to cities and counties to make up for their investment losses.
$19.9 million -- Investment that Long Beach lost when Lehman Brothers Holdings Inc. declared bankruptcy in September.
$75.13 million -- Investments lost by California cities because of Lehman
Brothers' bankruptcy.
$228.4 million -- Investments lost by California counties because of Lehman Brothers.
$675 million -- Investments lost by California pension plans because of Lehman Brothers.
28 -- Number of California cities and counties that lost investments from failed financial institutions.
Sources: Sen. Dianne Feinstein's office and the League of California Cities
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Paul Eakins
Copyright (C) 2009, Press-Telegram, Long Beach, Calif.
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