US credit downgrade causes uncertainty in Ill.

SPRINGFIELD — The downgrade in the nation's credit rating has some Illinois financial officials bracing for a negative impact on the state.

They say it could mean lower returns on state investments and higher interest rates on borrowed money. But no one is certain.

The rating agency Standard & Poor's has downgraded U.S. credit for the first time in history, questioning the nation's ability to pay its debts long-term.

State Treasurer Dan Rutherford said investors were buying U.S. Treasury bonds Monday, driving down interest rates on a traditionally safe investment that is home to part of the state's portfolio. The Republican said lower returns also come with other investments and the state will not make as much interest income in August as is typical.

The cost of borrowing money could increase both for consumers and the state, said Jim Muschinske, revenue manager for the Legislature's Commission on Government Forecasting and Accountability.

"The state could be affected, but to what magnitude there is no way of knowing," he said. "We might have to pay a higher interest to get people to buy" bonds the state sells to raise cash.

That could mean increased borrowing costs of possibly ½ of 1 percent, according to Kelly Kraft, budget spokeswoman for Gov. Pat Quinn. But Kraft said the state does not intend to sell bonds again until September, "which allows the market to digest the situation."

Standard & Poor's currently ranks Illinois credit at "A+," or four spots from the highest rating, Kraft said.

The downgrade contributed Monday to the largest stock market plunge since 2008. That hurts other state investments, such as pension system portfolios.

"It furthers the volatility in the marketplace and that's bad for all investors, including large institutional investors," said Dave Urbanek, spokesman for the Teachers Retirement System.

Bill Atwood, executive director of the Illinois board of Investment, said the market is more affected by the worldwide economic situation than the credit downgrade alone.