The depressed real estate market now seems to claim another victim—local governments. As with many government entities, city, county and state governmental units across Florida have invested in a fund containing mortgage-backed assets.

Florida’s State Board of Administration, which oversees the local government investment pool, recently froze the fund after worried investors sapped $10 billion from it within two weeks. That created financial bedlam for some investors, particularly small municipalities and school districts that rely on the fund to make payroll, bond payments and other obligations.

The plan that Governor Crist has approved will split the fund into two parts, the largest containing its securest assets. Investors will be able to withdraw $2 million or 15 percent of their holdings. They will have to pay a fee to withdraw more than the cap, which will expand gradually and eventually be lifted. This “clean” portion of the fund will comprise 86 percent of it. The plan also calls for establishing a public-private partnership with financial institutions to allow pool investors to borrow against their shares in the fund.

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