Florida officials are expected to reo-pen part of the state’s investment fund tomorrow to resolve a $19 billion (£9.2 billion) funding crisis that threatens to delay salary payments for public employees such as teachers, fire-fighters and policemen.

The crisis erupted last week after the state’s Governor froze the investment pool, out of which some counties pay their wage bills.

The fund is heavily invested in sub-prime mortgage-backed securities and about $10 billion has been withdrawn in the past two weeks as counties feared that its value would fall rapidly. The freezing forced many counties to seek other ways to pay teachers, whose final salary payment before Christmas was due on Friday.

Hal Wilson, chief financial officer for Jefferson County Schools, said that his school district was “flat broke” because its surplus cash was in the fund. On Friday, Mr Wilson reneged on other bills in order to meet the $1 million monthly payroll.

Mr Wilson said: “Every dime we have invested is in that fund. What I am supposed to do to pay my employees? How will they pay for groceries and get fuel in their cars?”

Wayne Blanton, executive director of the Florida School Boards Association, which employs 175,000 teachers, said yesterday that he would urge the board to “change the culture of the programme” by investing in only the most liquid of assets.

He said that local banks had spent much of last Friday seeking emergency credit so that teachers could be paid. “I don’t know for sure but I think they will partially unfreeze the fund on Tuesday,” he said. “They are afraid that if they unfreeze all of the $19 billion there will be a run on the fund.”

Last month, reports that mortgage-backed securities were going to be downgraded triggered a run as counties began to withdraw their money.

While Coleman Stipanovich, executive director of the State Board Administration, sought to reassure public servants that the fund was safe, an emergency meeting was being called between investors and the advisory committee of the state board.

They wanted to reopen the fund without triggering a run on the pool, although it is understood they considered liquidating the fund. According to Florida’s State Board of Administration, no decision had been reached.

Calls to the Florida Government office were not returned.

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