Because the Treasury has dipped into Social Security long-term trust funds four times in the last two years amid government debt-ceiling problems, the funds may lose as much as $1.3 billion in interest payments over the next 15 years, the Senate Finance Committee was told yesterday.
Deputy Assistant Treasury Secretary John J. Niehenke said that, in October 1984 and in September, October and November this year, the Treasury "disinvested" interest-bearing long-term securities held by the Social Security trust funds. That means bonds were converted to cash in several complicated paper transactions.
Niehenke said this was necessary to assure payment of benefits because the debt ceiling on each occasion had been reached.
As a result, the Treasury could not, in effect, use Social Security payroll tax revenue to pay benefits as they came due and avoid drawing down the long-term bonds normally kept as a reserve.
When the crisis is over, he said, the Treasury can reinvest the payroll-tax revenues in new long-term bonds.
Sen. Daniel Patrick Moynihan (D-N.Y.) berated the Treasury for not informing Congress about all of the four transactions and said at least part of the amount cashed was used to "float the rest of the government." Niehenke denied it.
According to a report from the chief actuary of the Social Security system, in October 1984, $5.5 billion worth of high-interest Social Security long-term bonds were cashed. When they were restored, interest rates on such bonds had dropped and the $5.5 billion was reinvested at lower rates. The loss of interest totaled $440 million through fiscal 1991, the report said.
This year, the actuary said, long-term bonds amounting to $6.9 billion in September, $4.8 billion in October and $12.8 billion in the first few days of November were cashed.
When the bonds are eventually restored, interest rates again will be lower if the economy follows the path projected in the administration's mid-session economic review, the report said.
Over the next 15 years, the funds would collect $875 million less in interest than if the bonds had not been cashed in September, October and November, it said.
Under another economic scenario, however, interest rates could be higher, and 1985 transactions could result in a $548 million gain for the funds over the same 15-year period, the report said.