Lew issues debt ceiling alert

Treasury chief says U.S. could run short of cash

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WASHINGTON -- Treasury Secretary Jacob Lew has urged Congress to act quickly to raise the federal debt limit, saying Monday that he will run short of cash to pay the nation's bills by the end of this month without additional borrowing authority.

Enforcement of the debt limit is currently suspended, but it will come back into force Friday under the terms of a deal lawmakers struck last fall. That leaves Mr. Lew bumping up against the limit at the height of tax-filing season, when, he said Monday, he will have far less flexibility to juggle the books and ward off disaster.

"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," Mr. Lew said during a speech at the Bipartisan Policy Center, a Washington think tank that combines balanced policymaking with advocacy. "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, last week said he will not permit the nation to default on its debt. But House Republicans emerged last week from their annual policy retreat on Maryland's Eastern Shore without a strategy 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 note that the provisions dubbed "bailouts" by the GOP are necessary to ease the transition into the ACA's public marketplaces -- and, in fact, 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, Mr. Lew said, Treasury will start taking "extraordinary measures" to conserve cash. Those measures are a well-worn set of tools by this point, but they will not buy the Treasury Department nearly as much time as in previous standoffs.

There are two especially powerful "extraordinary measures." The first, which is available, is through the federal employees' retirement investments in what's known as the G-Fund, since 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.

But the second measure is not available -- making new investments to its civil-service disability and retirement fund, which the government uses to pay out civil-service pensions. The fund sometimes has maturing securities, or interest 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 over 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 projects that the government will be unable to meet all of its obligations sometime between Feb. 28 and March 25.

As soon as March 14, according to the policy center's analysis, the government could be within $5 billion of default -- "even under a very optimistic scenario." The center 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."

At roughly 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 are slated to go out March 3, followed by an additional $12 billion March 12.

With tax season in full swing, predicting the actual date of default has been especially tricky. In a report last November, the Congressional Budget Office agreed that the Treasury would most likely exhaust the extraordinary measures in March. But because of uncertainty around tax filings, the CBO said it was possible that Treasury could hold out as late as June.

More recent projections, however, all point to the drop-dead date being sooner rather than later. A scenario in which Mr. Lew could ward off disaster until the spring, the policy center said, is "extremely unlikely."


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