US Treasury asks about subsequent payments as debt ceiling deadline nears

US Treasury asks about subsequent payments as debt ceiling deadline nears

The Treasury Department has asked federal agencies if they can make the upcoming payments at a later date, two people familiar with the matter said, as top Biden officials look for new ways to conserve cash and prevent the US government to face an unprecedented default.

With a deadline looming in less than two weeks, the White House is looking for ways to give President Biden and House Speaker Kevin McCarthy (R-Calif.) more time to strike a deal to raise the debt ceiling Federal, which sets a legal threshold. limit on public borrowing. Without additional borrowing, further tax revenue increases or new ways to slow spending, the federal government expects to miss a payment for the first time in modern history by early June.

On May 22, House Speaker Kevin McCarthy said he had a “productive discussion” with President Biden about reaching a deal to raise the debt ceiling. (Video: The Washington Post)

To postpone the so-called “X date” when reserves run out, Treasury officials asked their federal agency counterparts about the flexibility of payments due before early June, one of the people said. The Treasury has not asked federal agencies to defer payments past their due dates, the person said.

Planning has become increasingly urgent in recent days. Last week, senior Treasury officials sent a memo to federal agencies asking them to take additional steps to keep the Treasury Department closely informed of their spending. In the memo – which was obtained by The Washington Post and has not previously been reported – David A. Lebryk, the Treasury’s assistant secretary for finance, ordered agency officials to notify the Treasury for at least two days in advance of all “deposits and disbursements” between $50 million and $500 million. Payments over $500 million require five days’ notice, the memo says.

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“Please emphasize to your staff the importance of these updates during this time and to ensure your agency’s reporting is accurate,” the memo reads. “Your reporting offices need to reconcile reported amounts to actual payment activity to ensure that these reports are reliable during the critical period.”

White House spokespersons declined to comment. A Treasury spokesperson said: “To produce an accurate forecast around the debt limit, it is essential that the Treasury has up-to-date information on the magnitude and timing of agency payments. As in previous episodes of debt limitation, the Treasury will continue to communicate regularly with all aspects of the federal government on their planned spending. »

Determining the precise amount of funds available to make federal payments has become especially critical as some Biden aides seek ways to buy more time for high-stakes debt ceiling negotiations between the White House and Capitol Hill.

In a letter to lawmakers on Monday, Treasury Secretary Janet L. Yellen said Congress may only have until June 1 before the federal government runs out of cash reserves, though again predicted that the Treasury could hold out until ‘early June’. Some Wall Street forecasters have said the real X date – the day the government finally misses a payment – is likely June 8 or 9.

With a large influx of quarterly tax payments expected to hit treasury coffers on June 15, administration officials are looking for ways to hoard cash and squeeze in a few more days. If they can make it to June 15, rising revenue could give the Treasury enough funds to push the X date back to July, when a new set of accounting metrics become available, perhaps allowing them to push back even further. the prospect of default. the future.

“They may have a few tricks up their sleeves to get to June 15,” said Marc Goldwein, senior vice chairman of the Committee for a Responsible Federal Budget, a Washington-based think tank. “And if they get to June 15, they can go much longer.”

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Administration officials are not betting on this strategy. Yellen was adamant that the only way to avert calamity is for Congress to raise the debt ceiling before June. Independent budget experts have pointed out that there are no good legal options to significantly increase the amount of cash available to the Treasury.

Meanwhile, some experts fear the extension of the deadline could have the unintended consequence of creating more uncertainty among lawmakers, which could ease their pressure to reach a deal to raise the debt ceiling by 31,000. $4 trillion – even as the imperative for congressional action grows ever more urgent.

Uncertainty over the debt ceiling has reached a level not seen in years after a narrow Republican majority in the House conditioned higher debt on spending cuts. (Video: JM Rieger/The Washington Post)

Brian Riedl, a political analyst at the Manhattan Institute, a libertarian-leaning think tank, said it was unclear whether the Treasury could find a lot of available funds by rummaging through the country’s couch cushions.

“Washington borrows $100 billion a month, and the odds of finding a large pile of money that hadn’t been noticed are slim to nil,” Riedl said.

Entering the Capitol on Tuesday morning, McCarthy said the two sides were staying apart. Asked if he was close to a deal, McCarthy said “no”, although he said it was still possible to reach a deal before June 1.

As questions swirl around the absolute last date by which the United States could cover all of its bills, McCarthy said he was deferring to the Treasury Department’s warning about the impending deadline. After answering questions from reporters, McCarthy walked into his office. His fellow GOP negotiators — Rep. Garret Graves (R-La.) and Patrick McHenry (RN.C.) — followed minutes later.

If the United States comes to the brink, Biden aides are already exploring unilateral options to stave off what many economists believe is a global economic crisis. An administration official, speaking on condition of anonymity to describe the government’s internal deliberations, agreed that “we are looking under the couch cushions.” But, the person said, “It’s a really big couch.”

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Administration officials declined to provide details on the actions being considered, but outside analysts outlined some likely options.

Alec Phillips, the chief U.S. political economist at Goldman Sachs Research, has raised “a little belt-tightening” as an option, in which the Treasury Department could order agencies – such as the Defense Department and the Centers for Medicare and Medicaid Services – to slow reduce their payment submission process. It wouldn’t be the same as ordering them to stop payments, but it could slow the flow of money from treasury coffers.

Such actions “do not solve their problem but might be enough if they were just looking for a little extra room (which is probably all they need in June),” Phillips said in an email.

The Treasury could also sell bonds held by some of the government’s massive trust funds, such as the Social Security Trust Fund or the Highway Trust Fund. It could raise tens of billions of dollars immediately, some experts said, and trust funds could easily be replenished once the standoff is over.

However, these ideas have their drawbacks.

The law requires contractors and those who owe money to the federal government to be paid promptly. Otherwise, the government face repayment penalties, which could include an additional 4.6% interest, according to Riedl. Federal agencies could also resist attempts to slow or stop payments, citing a 1974 law that prohibits the executive branch from substituting its own spending priorities for congressional decisions.

“I don’t believe an agency career manager would be in danger of breaking (this law) by deliberately delaying a payment in order to circumvent the X date,” said David Vandivier, who served as deputy undersecretary for the budget and to taxes. in the Treasury’s Office of Legislative Affairs during the Obama administration and is now executive director of the Psaros Center for Financial Markets and Policy at Georgetown University.

The Treasury Department could find a few billion more dollars by tapping into Treasury securities held by the Federal Financing Bank, which helps provide low-cost loans for federal programs, said Shai Akabas, director of economic policy. at the Bipartisan Policy Center, a DC-based think tank. But that would likely be less than a day of federal payments.

Akabas said other options — such as slowing payments or plundering trust funds — would bring other risks. The Biden administration has resisted calls to end the debt ceiling impasse by invoking the 14th Amendment or minting a $1 trillion coin, actions it considers risky and subject to legal challenge. . The current search for ways to extend the X date could also plunge the administration into uncharted waters.

More spectacular options are available. Biden has the power to sell US assets such as parks or federal buildings to raise money, but doing so would almost certainly trigger a political backlash. Dean Baker, an economist at the Center for Economic and Policy Research, noted that the president may sell some of the Treasury’s $500 billion in gold reserves.

There is no indication either idea is being considered, although Treasury Secretary James A. Baker III has threatened to sell gold bonds during a similar debt ceiling standoff. In the 1980’s.

“There are measures they could consider, such as actually asking agencies to wait until bills are due to do them, which could slow down the payment of bills. But that would be a very big undertaking. And I don’t know how much they would even delay the X date,” Akabas said.

He added, “We have done this exercise dozens of times before. So if there was something readily available you would think we would have heard of it.

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