Treasury Secretary John W. Snow made the opening move yesterday in what is becoming an annual ritual: finding ways to avoid breaching the legal ceiling on the national debt until Congress musters the political courage to increase the $6.4 trillion debt limit.
In a letter to 22 congressional leaders, including House Speaker J. Dennis Hastert (R-Ill.) and Senate Majority Leader Bill Frist (R-Tenn.), Snow said he would temporarily be unable to fully invest a government employees retirement fund in Treasury securities, beginning today.
The maneuver leaves Treasury free to sell Treasury securities to the public, to finance the steadily rising federal budget deficit and pay the government's bills. Also, Treasury has suspended sales of Treasury securities to state and local governments. When those governments sell tax-exempt bonds, they are required to buy Treasury securities with the proceeds until the money is used for its intended purpose, such as paying off older bonds or building highways.
"Together we must continue working to enact an increase in the statutory debt limit as quickly as possible to avoid any negative repercussions at home or abroad," Snow wrote.
Brian C. Roseboro, assistant Treasury secretary for financial markets, said "there is some risk whether all the tools we have would be enough to get us past early April" without congressional action. That will depend on patterns in spending and tax refunds before cash begins to pour in before the April 15 deadline for filing income tax returns, he said.
Last year Congress and the administration went through the same struggle, with then-Treasury secretary Paul H. O'Neill taking a series of steps to keep the debt below a $5.6 trillion limit. He was forced to use maneuvers that some congressional Republicans had claimed were illegal when Robert E. Rubin used them as Treasury secretary during the Clinton administration.
The debt limit applies to virtually all the government's outstanding debt -- that held by the public as well as that invested in government trust funds, such as those for Social Security and Medicare.
Before the terrorist attacks of Sept. 11, 2001, the Bush administration had expected the $5.6 trillion debt limit to allow Treasury to operate until September of this year. But with the impact of the attacks on federal spending and tax revenue, the limit was expected to begin to bite as early as last February, and the administration sought an increase of $750 billion in the limit.
The limit did begin to squeeze the government last February, but using various maneuvers, the administration got past an early April crunch -- only to feel it again in June. In late June, Congress approved an increase of only $450 billion in the debt limit, and now a replay is running.
Last week Federal Reserve Chairman Alan Greenspan urged Congress to eliminate the debt limit, which he called "redundant."
"The debt ceiling is not a useful fiscal tool and indeed has never, in my judgment, been successful in doing what it is supposed to have been doing; namely, constrain spending. I would think it would be wise to eliminate it," the Fed chairman said.
While the administration officially won't go that far, Treasury's Roseboro agreed with Greenspan that the actual level of debt reflects past tax and spending decisions and that the existence of a debt limit is an operating headache.
"Anything that would make this less of a burden would be welcome," Roseboro said.
Unlike last year, Treasury has not requested a specific increase in the debt limit, leaving it up to Congress to decide whether to increase it a lot or a little, a decision that will depend on how soon legislators want to have to deal with the issue again.