San Mateo to recoup funds lost to Lehman Bros.

May 5, 2009 9:33:35 AM PDT
San Mateo County officials will appear before the House Financial Services Committee in Washington, D.C. on Tuesday to ask for federal funds to help compensate for millions in local taxpayer dollars lost in the collapse of Lehman Bros. investment firm last year.

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A number of San Mateo County entities contribute to a County Investment Pool, and 5.9 percent of that account was invested in Lehman Bros. securities, County Treasurer Lee Buffington said.

Contributing entities include school districts, cities, the San Mateo County Transportation Authority, the Peninsula Corridor Joint Powers Board, the Bay Area Air Quality Management District and fire districts.

About $155 million in county taxpayers' money was lost when Lehman Bros. collapsed, and a total of $1.7 billion was lost by local and state governments nationwide, when the investment giant went bankrupt in September 2008.

U.S. Reps. Jackie Speier, D-San Mateo, and Anna Eshoo, D-Palo Alto, introduced legislation in January asking Treasury Secretary Tim Geithner for money from the Troubled Asset Relief Program to help reimburse local governments that lost money to Lehman Bros.

Sen. Dianne Feinstein introduced similar legislation in January that calls for the Treasury secretary to give $10 billion from the TARP to local governments that lost money as a result of investments with failed institutions.

Speier, Eshoo, San Mateo County Supervisor Rich Gordon and San Mateo County Community College Chancellor Ron Galatolo are among those presenting Tuesday before U.S. Rep. Barney Frank, chair of the Financial Services Committee, to request that he urge the Secretary of the Treasury to begin providing TARP money to local governments hit by the Lehman Bros. collapse.

"As of yet the Secretary of Treasury has not exercised his right to do so," Galatolo said.

"The purpose of the meeting is to see if more pressure can be put on the Secretary of Treasury (to get) a response as to why he has not exercised his authority to reimburse agencies," Galatolo said.

Gordon said he plans to point out Tuesday that the $1.7 billion local governments lost nationwide in Lehman Bros. investments constitutes "less than a quarter of a percent of the total funds allocated to TARP -- $700 billion."

Galatolo and Gordon said they will emphasize the effects the loss has had in San Mateo County.

"The funding for colleges and schools is being hit right now pretty hard," Galatolo said. "The Lehman loss is only exacerbating that problem."

He said about $20 million was lost from the county community college district's construction fund, money that was to be used to build new classrooms. Galatolo estimated that as many as 400 potential construction jobs vanished as a result.

Gordon said that additionally, the Lehman Bros. loss included money the transportation authority planned to use for road improvements and funding to pay for more teachers.

"San Mateo County was hardest county hit in California," Gordon said. "But there are many jurisdictions across the country that have lost money."

Galatolo and Gordon said they are hopeful that Tuesday's presentation will result in federal money for the county but say the process may take time.

"There's a lot of political maneuverings going on right now," Galatolo said. "It's a big step forward for the chairman to give us a specific hearing."

Gordon said, "There are many potential outcomes. More than likely this is something that takes further discussion. We're here to make the initial presentation."

San Mateo County filed a lawsuit against Lehman Bros. in San Francisco Superior Court on Nov. 13. The lawsuit alleges the executives misled investors to believe the institution was stable, while privately aware that the company was on the verge of collapsing.

Joining Speier, Eshoo, Gordon and Galatolo at Tuesday's presentation will be Honorable Karen Rushing of Sarasota County, Fla., Honorable Bob Hullinghorst of Boulder County, Colo., and economist Chris Thornberg of Los Angeles.

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