San Mateo County Grapples With Economic Fallout: NPR Interviews Supervisor Rich Gordon


Posted by on Tue, April 13, 2010


As the national economy slowly recovers from the 2008 Wall Street meltdown, San Mateo County, Calif., is still grappling with the fallout. The county lost more than 150 million dollars when Lehman Brothers went under. That loss, combined with California’s overall economic crisis, has forced San Mateo to make deep cuts in spending and personnel. 

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Not long before Washington Mutual was seized by federal regulators, the investment bank Lehman Brothers collapsed, and that collapse is still playing out on main streets across the country. Exhibit A: California’s San Mateo County. Among local governments, it was the single biggest loser when Lehman fell apart.

More than a year and a half later, San Mateo officials are still trying to get some of their money back. NPR’s Richard Gonzales reports.
(Soundbite of train)

RICHARD GONZALES: The train that carries commuters between San Francisco and San Jose runs right through one of California’s most diverse regions, San Mateo County, where Richard Gordon is a supervisor.

Mr. RICHARD GORDON: (Supervisor, San Mateo County) We have an agricultural zone on our coastal area. We have the San Francisco International Airport in our county. We are home to biotech and hi-tech. And we’re also diverse in terms of the people who live here. We go from extreme poverty to extreme wealth.

GONZALES: San Mateo County also bore the brunt of Lehman Brothers’ bankruptcy. Like scores of local governments and school districts around the country, the county invested money in a pool tied to Lehman Brothers’ bonds. When the firm folded, the county lost $155 million, more than any other local government in America. Gordon calls it a perfect storm.

Mr. GORDON: We had this incredible international economic downturn. We’ve suffered from state cuts, particularly in transit, and we’ve had the loss of the Lehman Brothers’ monies that were part of, you know, an investment where we were banking our money for future expenses. Now, some of those future expenses would have been improvements to this rail line.

GONZALES: County schools have been hit hard, too, to the tune of about $38 million dollars. The Sequoia Union High School District had to absorb a six a half million-dollar loss, costing it 20 teachers and a cramped construction project, says assistant superintendent James Lianides.

Dr. JAMES LIANIDES (Assistant Superintendent, Sequoia Union High School District): We have a project that will be breaking ground this summer at one of our high schools, at Carlmont High School. And it’s a biotech building. And the budget for this building is $6 million. And in other words, the amount of money that we lost pretty much would’ve paid for that building.

GONZALES: Bleeding red ink, San Mateo County officials decided they would try to get their money back. So they joined a bankruptcy claim against Lehman Brothers and sued its former executives for fraud, and they got their congressional representatives to join the fight. Congresswoman Anna Eshoo, a Democrat, represents San Mateo County.

Representative ANNA ESHOO (Democrat, California): They were not playing the market. They were not rolling the dice to optimize those dollars. They were invested in the safest, most conservative instruments. And yet when Lehman Brothers went down, those funds were lost.

GONZALES: Eshoo and other lawmakers put language in the TARP legislation giving the government authority to bail out not just big banks but places like San Mateo County, too. Treasury Secretary Timothy Geithner doesn’t see it that way. The Treasury Department issued a statement, saying there are many well-intentioned ideas for the TARP money, but Congress never intended to help all of Lehman Brothers’ casualties.

As a result, the anger once reserved for Lehman Brothers is now also directed at Secretary Geithner.

Rep. ESHOO: My constituents say, well, the government went in and helped out the very large banks and the large outfits because they were too big to fail. We may be in a position where we are too small to be paid attention to.

GONZALES: San Mateo County officials aren’t giving up. They organized a coalition of more than 40 municipalities across the country that also lost money with Lehman Brothers, looking at every angle to get it back. But for supervisor Richard Gordon, help can’t come soon enough. He says San Mateo County will try to avoid a mass layoff by eliminating 150 positions through attrition.

Mr. GORDON: We’re here on the opposite coast from where Lehman Brothers and Wall Street sits and perhaps in some ways forgotten, and how this Main Street in San Mateo County was impacted by bad decisions on Wall Street and an inability of the federal government to protect this place as it protected other investments across the country.

GONZALES: Gordon says he is left feeling leery of ever trusting Wall Street again.

Richard Gonzales, NPR News, San Mateo, California.

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Excellent story- a local issue with national context and a national issue with local context - we need more of this kind of reporting. Thanks for posting.

Good story, but let’s also call a spade a spade here. It’s beyond dismissive to blame Wall St, not to mention Anna Eshoo’s (much less everyone’s) ommission of FORCING many banks to take the TARP money when they didn’t need it (on our tax dime via “let’s play bank over-regulation”), and NOT allowing them to pay it back ASAP (see Wells Fargo, BB&T, et al/ad-naseum). Then say it’s Lehman who is compromising little Billy’s education. Claiming to lose $150M against a nearly $2B budget. And paaaaaaaaaa-lease “They were invested in the safest, most conservative instruments.”. Anna, stick to eco-totalitariasm or whatever it is you do best. For one, the safest, most conservative instruments are things like cash and US bonds. Not the point, as the San Mateo County government investment committee knew full well the risk of the investments they entered into with public funds, just as CALPERS did/does. Even “near-cash” products… any investment officer knows what is actually behind that. But… NPR is like listening to Fox (mind you, on the other side of the aisle) so I’m not going to split economic hairs amidst the aptitude of the coastal blogosphere, because even the rhetoric of “the Lehman fallout is collapsing the entire San Mateo County economy” is only recognizing the SHORT-TERM problem here. We’ll recover from that debacle, and so you won’t be able to build a $6M, errrrrrrrr $8.5M bio-dome at a San Carlos/Belmont school this year, maybe in a few years instead. What should be in question is how long we can prop up the existing system, even in moderation.

“San Mateo County also bore the brunt of Lehman Brothers’ bankruptcy” Well duh… we are one of the HIGHEST contributing districts for Federal tax revenue, yet way down on the list on ratio of what we get back from Wash DC. So why is it a shock that we also take the bigger hit when things go “South”, as we get less when things are looking “North”. It’s not one and the same, but the civic compass stays true. Makes complete perfect sense, our representation fails us both in windfall and disaster.

The capital market system has at least somewhat recovered, but what is behind and with no foreseeable improvement, and arbitrarily still 2x worse off as before, is government’s fiscal practicum. Including, but not limited to, local government. Moreover, local governments and agencies expecting continued historic revenue windfall (corporate, income and property tax) to continue into perpetuity, nor saving for a rainy day during the “boom era”. Unfortunately, it’s the system comprising gov’t bloat, strong-handed into bureaucratic programs, and the inability to find efficiencies, much less be efficient. When the government gets a ‘bonus’ from the benefits of successful capitalism, they spend it immediately, and furthermore factor it as expectancy. Unfortunately, far beyond what a Rich Gordon, or perhaps what a Jerry Brown/Meg Whitman can solve. Maybe someone at NPR has the solution vs. blind blaming. So go ahead and close your eyes and make the big bad Wall St boogeyman go away and believe that the Bank of Americas and their dangerous capital market sheningans amidst those nasty and lofty (sarcasm) 8% profit margins is the cause for all our public service shortfalls, while the true nightmare of gov’t programs, utopian measures, and poor fiscal practicum is still on the horizon. Wake up.

You can protest all you want about education cuts and services cuts. Whom are these people protesting to, and where should they cut? And please, don’t blame Wall St on this one ...and I know we’re not there yet, but I’m sensing that people may just now, remotely realize ballot box budgeting and all those feel-good projects, services, and agencies written into law that grow and grow, and spend as much of their time justifying the problem vs. proving efficiencies in the solution, eventually impact and knock over basic services when the revenue streams go through cyclical downturns, a la find a recession, much less moderation (which we’re expected to see post-recovery… the ain’t happening any time soon kids, yet we seem to be budgeted to).

But ... it doesn’t matter, as when the witch hunt on Wall St ends and we some how “get our money back from Lehman” (read as: from the taxpayer) our local/state governments will STILL be wraught with a shortfall and moreover, poor practices from Sacramento on budgeting against overzealous programs with the expectation that they are the non-removable (much less expandable) lifeblood. Talk about the perfect storm, that never ends. Yes, Wall St screws up fiscal responsibility once in a while, recovers, and returns health back to the system ...can’t say that about you-know-whom.