State Treasurer Dan Rutherford Preparing in Case the Federal Debt Ceiling Impasse Continues and Low Interest Rates Drop Further
Office of Illinois Treasurer Dan Rutherford|Friday, 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).
State Portfolio Interest Illinois Funds Interest Total Interest
FY 2011 $49,888,444 $11,374,700 $61,263,144
FY 2010 50,655,198 11,840,855 62,496,053
FY 2009 61,029,263 66,418,655 227,447,918
FY 2008 375,516,199 223,826,336 599,342,535
“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.”
