Ala. shifting investments in case of debt limit bust

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.

David Bronner oversees an investment portfolio worth more than $27 billion as CEO of the state's pension fund, the Retirement Systems of Alabama, but he said there's little he can do but watch and wait to see what happens with the debt ceiling debate in Washington.

About 61 percent of the pension fund's investments are in stock, and even a 10 percent drop in the stock market could cost more than $1.5 billion on paper. But unlike a small investor who could cash out, purchase short-term securities or buy gold that's already high-priced, Bronner said the pension fund must wait out the debt ceiling debate in Congress and see what happens.

"There's nothing you can really do of substance unless you want to take a bunch of derivatives," Bronner, the longtime chief executive of the fund, said in an interview. "The problem with that is that if you guess wrong you can get your head handed to you, too."

State Treasurer Young Boozer said officials have been monitoring the situation in his office, which manages state investments. Boozer, a first-term Republican, said the biggest potential impact is on the investments his staff oversees, but he is hopeful.

"We don't think it's going to have a significant impact on us," Boozer said.

Ardis said Bentley's administration was preparing a contingency plan in case the debt limit is not raised. With the deadline approaching Tuesday, the state's plan was not far enough along to discuss specifics, she said.

The debate is being watched particularly closely in Huntsville, where about half the economy is tied to the Army or the National Aeronautics and Space Administration at Redstone Arsenal. Mayor Tommy Battle and Finance Director Randy Taylor said the city could suffer through credit downgrades and a decline in tax revenues should government operations slow down or grind to a halt, but the effects wouldn't be immediate.

"The worst-case effect is a trickle-down effect, and it will take a while for it to trickle down from Washington to Huntsville," said Battle.

AP reporter Jim Van Anglen in Montgomery contributed to this report

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