National debt crisis closely watched by Delaware fiscal watchdogs

Delaware’s investment portfolio is being carefully monitored during the crisis over the nation’s debt ceiling, the threat of default, and a downgrade in the nation’s credit rating.  

Delaware’s portfolio was worth about $2.07-billion as of late July, when five of the 15 states with AAA bond ratings were facing possible downgrades.  The First State was not one of them, and while a government default was averted, the state is taking steps to protect its overall financial health.

State Treasurer Chip Flowers said the state took action several months ago to reduce the impact a short-term government default (30-60 days) would have on the Delaware’s investments.

“We also increased the state’s cash positioning, so in case the government had gone into default status we would have had enough cash to pay the state’s bills for a few months,” Flowers said.

Although the government default did not happen, Standard and Poors went ahead and downgraded the nation’s AAA credit rating.  Flowers is concerned about the possible ripple effects.

“So many other securities, local bonds, state bonds, county bonds, are tied to the rate that’s on the federal bond, one goes up they all move up,” Flowers said.  He added that interest rates could go up for consumers on their credit cards, car loans and commercial loans.

State treasurers from around the country plan to meet later this summer to consider possible strategies for protecting their state investment portfolios.  This may involve reducing the link to US securities and looking for more stable securities – perhaps those issued by governments in other countries, according to Flowers.

“Here in Delaware we’re going to make sure we make the best decisions and put the money in a safe security where we believe the money will be protected,” Flowers said.

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