Uncle Sam will exhaust its emergency borrowing authority by Oct. 17 and won’t have enough money to pay all its bills if Congress does not increase the debt limit, Treasury Secretary Jacob Lew said on Wednesday.
Without an increase in the $16.7 trillion debt limit and no more emergency borrowing authority to draw from, the government could default for the first time in history. That would put federal civilian and military salaries at risk, and could result in pay delays governmentwide.
Lew said that no later than Oct. 17, Treasury will have exhausted its emergency borrowing authority or “extraordinary measures,” which it tapped in May when the government hit the debt ceiling. The emergency borrowing authority has allowed the government to stay afloat through the summer.
“We estimate that, at that point, Treasury would have only approximately $30 billion to meet our country’s commitments,” Lew wrote in a Sept. 25 letter to lawmakers. “This amount would be far short of net expenditures on certain days, which can be as high as $60 billion.” The nonpartisan Congressional Budget Office projected on Wednesday that the government would run out of its emergency borrowing authority and its cash balance of $30 billion between Oct. 22 and the end of the month. CBO warned, however, that the possible date “could fall out of that range.”
If Congress does not increase the debt ceiling, and the government exhausts its extraordinary measures, runs out of cash on hand, and does not receive enough daily revenue to pay its bills, then it will default on its obligations.
Some economists had predicted the government would hit its “X” or default date between Oct. 18 and Nov. 5. At the end of August, the Treasury had $108 billion to use to pay its bills from the extraordinary measures implemented in the spring, according to the Bipartisan Policy Center.
One of these measures that the government often has used to avoid a default is tapping into and suspending investments into the Civil Service Retirement and Disability Fund and halting the daily reinvestment of the Thrift Savings Plan’s government securities (G) fund, the most stable offering in the retirement program’s portfolio. The law requires the Treasury secretary to refill the coffers of the G Fund and the Civil Service Retirement Fund once the issue of the debt ceiling is resolved, and in addition, to make up for any interest lost on those investments during the suspension.
The government is on track to default sooner rather than later in part because of a large bill due on Oct. 1: Roughly $75 billion in military retirement prefunding requirements.
A default would jeopardize the country’s credit rating around the world, undermining the economy. Lew said that if the government becomes unable to pay all its bills, “the results could be catastrophic.”
Lew also criticized House-passed legislation that prioritizes the Treasury’s payments in the event the government exhausts its emergency borrowing authority and can’t pay all its bills on time. There’s a stand-alone bill the House passed in May, and a provision in the House-passed continuing resolution that the Senate is now considering, that would require the government to make payments on the public debt and the Social Security trust funds before paying its other bills if it hits the debt ceiling. The government only could borrow money above the debt limit for those payments. Under that legislative language, payments to the debt and Social Security trust funds would take priority over troops’ pay, veterans’ benefits, contractors and Medicare, for example.
Lew said there was no way of knowing the effect of a prioritization plan on the economy, making it unwise. “Any plan to prioritize some payments over others is simply default by another name,” Lew wrote. “The United States should never have to choose, for example, whether to pay Social Security to seniors, pay benefits to our veterans, or make payments to state and local jurisdictions and health care providers under Medicare and Medicaid.”
Republicans have threatened to use the debt ceiling as the next bargaining chip in the quest to defund the 2010 Affordable Care Act, President Obama’s health care reform law. A major portion of that law, the creation of health insurance exchanges, begins Oct. 1. That’s also the day the government will shut down if Congress cannot pass a continuing resolution by midnight on Monday.