July 31, 2011
(Host) Vermont finance officials are bracing for a possible federal debt default.
They say the state has plenty of cash reserves to weather a short-term halt in federal funds. But theyre more worried about the possibility of the debt crisis continuing.
VPRs John Dillon has more.
(Dillon) On Monday, one day before the deadline to raise the federal debt ceiling, Vermont is supposed to get $53 million from the federal government.
The money is for the feds share of the Medicaid program. Finance Commissioner Jim Reardon expects the cash to come in on schedule. Reardon says the future beyond that is a little harder to predict.
(Reardon) The federal government has not sent out any guidance as to what their priority of payments will be. So I dont know whether Vermont will receive some funding, no funding, or whether certain programs will receive priority payments and others may not.
(Host) The state gets about $1.6 billion a year from the federal government – money that pays for everything from health care to highway projects.
State Treasurer Beth Pearce manages Vermonts day-to-day cash flow. She says the states reserve funds are full. So there should be plenty of cash on hand if the federal funds stop flowing.
(Pearce) Our cash position is very liquid. We have reduced investments in areas that would have longer maturities so we could be liquid to address this emergency if in fact it happens. We still hold out hope that a solution can be found before Aug. 2.
(Dillon) Pearce says a default of the federal debt could have longer term consequences in the form of higher interest rates.
Vermont is one of 15 states with a triple-A credit rating, meaning its pays low interest rates when it borrows money. Pearce is worried that if the debt crisis continues, that credit rating could be at risk.
(Pearce) The fact of the matter is our reserves, our conservative management has served us well in that rating process. And were very pleased that were in good shape but again the impacts of Washington and the failure to resolve this impasse could lead to more issues and more financing costs for the state of Vermont over time if it is not resolved.
(Dillon) The debt crisis has also raised alarms among investors. Anne Doremus is a financial adviser with Hanson and Doremus in Burlington.
Shes been hearing from clients about how a potential federal default will affect their investments.
(Doremus) If you have a long time horizon you can afford to wait out these kinds of events. But either if you have difficulty just sleeping at night and your risk tolerance really just cant support this kind of environment, or if you have need to get access to cash, those are both good reasons to think about changing your strategy.
(Dillon) Doremus says markets will be volatile as long as the uncertainty over the debt ceiling continues. And she predicts that interest rates will also rise because of the failure to address the federal deficit.
For VPR News, Im John Dillon in Montpelier.