“Unlike other recent periods when we have had to use extraordinary measures to continue financing the government, this time these measures will give us only a brief span of time,” Lew said in a speech at the Bipartisan Policy Center. “Given these realities, it is imperative that Congress move right away to increase our borrowing authority.”
Congress, meanwhile, is moving at a relatively glacial pace. House Speaker John A. Boehner (R-Ohio) said last week that he will not permit the nation to default on its debt. But House Republicans emerged from their annual policy retreat without a plan for bartering with Democrats in exchange for raising the debt limit.
The most popular option under discussion by Republicans would combine a one-year extension of the debt limit with a ban on “bailouts” for health-
insurance companies under the Affordable Care Act.
But Democrats say that the provisions dubbed “bailouts” by the GOP are necessary to ease the transition into the health-care law’s public marketplaces — and were employed when Republicans set up a similar system for the Medicare Part D prescription-drug program.
Congress temporarily suspended the debt limit in October as part of a deal to reopen the government after a 16-day shutdown. On Friday, the limit will go back into force at the current level of U.S. indebtedness, which stood Monday at just under $17.3 trillion.
At that point, Lew said, Treasury will start taking “extraordinary measures” to conserve cash. Those measures are a well-worn set of tools, but they will not buy Treasury nearly as much time as in previous standoffs.
There are two powerful “extraordinary measures.” The first, which is available, is through the federal employees’ retirement investments, known as the G Fund because it holds government bonds. The government can temporarily reduce how much debt is held by the fund, which gives it more room to borrow within the debt limit.
The second measure, which is not available, is making new investments to the civil-service disability and retirement fund, which the government uses to pay out civil service pensions. The fund sometimes has maturing securities, or interest that has been earned on those securities, that are added to the account. In the past, Treasury has been able to defer those new investments, which gives the government more borrowing authority. But during the next month, no securities are scheduled to roll over, and no interest will be credited to the fund.
Meanwhile, with tax-filing season underway, refunds will be going out the door faster than tax payments will be coming in, leaving the government with less cash on hand than usual. In its latest analysis, the Bipartisan Policy Center (BPC) projects that the government will reach the point where it can no longer meet all of its obligations sometime between Feb. 28 and March 25.
As soon as March 14, according to the BPC’s analysis, the government could be within $5 billion of default — “even under a very optimistic scenario.” The BPC calculates that a typical day’s spending in March will be about $10 billion. As a result, the government could run out of funds “on or in the days before March 14.”
About the same time, Treasury will be required to make sizable payments to Medicare providers and bondholders, and write big checks to active-duty soldiers, veterans and Social Security recipients. For instance, $26 billion in Social Security checks is set to go out March 3, followed by an additional $12 billion on March 12.
With tax season in full swing, predicting the date of default has been especially tricky. In a November report, the Congressional Budget Office agreed that Treasury would probably exhaust the extraordinary measures in March. But because of uncertainty around tax filings, the CBO said that it was possible that Treasury could hold out as late as June.
More recent projections, however, point to the drop-dead date being sooner rather than later. A scenario in which Lew could ward off disaster until the spring, the BPC said, is “extremely unlikely.”