States beginning to prepare for debt bust ... (AL, IL)

[eppur_se_muova]

Alabama moves investments in case of debt limit bust; RSA in wait-and-see mode

BIRMINGHAM, Alabama — The state is moving some of its investment funds to cash to guard against possible losses should Congress and the White House fail to reach agreement on an extension of the debt ceiling, the governor's office said Friday.

Jennifer Ardis, a spokeswoman for Gov. Robert Bentley, said department heads also had been asked to move as quickly as possible to bring in any federal funding their agencies may be due. They also were told to prioritize payments to protect the "most essential government services" in case federal funds stop flowing from Washington to Montgomery, Ardis said.

"The state is closely monitoring the debt limit issue in Washington and is developing a contingency plan in case the debt limit is not raised," she said.

Some analysts are predicting a sharp downturn in markets if the federal government fails to raise the debt ceiling, leading to a potential default and downgrade of the nation's credit rating. That could hurt investments and increase costs for cities and counties that go to the bond market to borrow money.
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more: http://blog.al.com/wire/2011/07/alabama_moves_investments_in_c.html





ILLINOIS STATE TREASURER PREPARES IN CASE FEDERAL DEBT CEILING IMPASSE CONTINUES

CHICAGO – July 29, 2011 – As the deadline for raising the federal debt ceiling looms in Washington D.C., Illinois State Treasurer Dan Rutherford instituted twice-daily briefings with his senior investment teams earlier this week about the effect an impasse would have on the state treasury. “I want my office to be well prepared and positioned to shift investment strategies if the national debt ceiling is not raised. My number one priority is to safeguard the state portfolio from losses, earning a return is second,” said Rutherford.

Should the ceiling not be raised and the federal government becomes unable to issue bonds on new debt, the amount of US treasury bonds available for purchase will be reduced. Treasurer Rutherford emphasized, "I may be faced to take highly unusual action on investing state funds."

“There are limits on how much money I can place into certain kinds of investments, such as commercial paper,” explained Rutherford. “The best— and possibly only—option may be to keep our state funds in non-interest bearing, FDIC-insured transfer accounts. The money will be safe, but it will not be earning interest.”

Rutherford said, “My decision may come at a time when interest rates are already very low. Taxpayers deserve to earn as much interest on their state portfolio as possible, but asset security is the priority.” The amount of interest income from both the state government portfolio and the Illinois Funds (municipal portfolio) has dropped from FY 2008 to FY 2011 by more than a half-billion dollars ($538,079,391).

“The worst-case scenario assumes the markets will be dramatically affected by the impasse. The state treasury could not realize up to $5 million in interest the first month,” said Treasurer Rutherford. "Should Washington reach an impasse, I have chosen the most fiscally conservative approach for our state's investments. The state treasury will be secure.”
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more: http://news.mywebpal.com/news_tool_v2.cfm?show=localnews&pnpID=469&NewsID=1003767&CategoryID=20359&on=1