As Funds Run Short, Treasury Asks Agencies If Payments Can Be Made Later

The Washington Post / Jeff Stein, Rachel Siegel, Tony Romm

13:20 JST, May 24, 2023

WASHINGTON – The Treasury Department has asked federal agencies whether they can make upcoming payments at a later date, two people familiar with the matter said, as senior Biden officials search for fresh ways to conserve cash and prevent the U.S. government from facing an unprecedented default.

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

To put off the so-called “X-date” when reserves run dry, Treasury officials have asked their counterparts at federal agencies about the flexibility of payments due before early June, one of the people said. Treasury has not asked federal agencies to postpone payments beyond their due dates, the person said.

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

“Please stress to your staff the importance of these updates during this time and to ensure that your agency’s reports are accurate,” the memo said. “Your reporting offices should be reconciling reported amounts to actual payment activity to ensure the reliability of these reports during the critical period.”

Negotiations to find a broad agreement to raise the debt ceiling continued for several hours between representatives of Biden and McCarthy Tuesday, but little new progress appeared to have been made after Monday night’s meeting between the two leaders, who remain divided over how much the federal government should spend next year and other issues. Walking into the Capitol on Tuesday morning, McCarthy said the two sides remain far apart. Asked whether he was close to a deal, McCarthy responded, “no,” though he said it is still possible to get an agreement completed before June 1. White House spokeswoman Karine Jean-Pierre, meanwhile, told reporters that the talks have “been productive,” adding, “We believe there is a space and an opportunity here to have a bipartisan, reasonable, reasonable budget agreement.”

The Bipartisan Policy Center, a D.C.-based think tank whose debt ceiling estimates are closely watched, reported Tuesday that it expected the U.S. government to run out of money between June 2 and 13 if the limit is not raised. Major stock indexes closed slightly down Tuesday as traders looked ahead to the prospect of default.

Spokespeople for the White House declined to comment on any attempts to conserve funds ahead of the deadline. A spokesperson for Treasury said: “To produce an accurate forecast around the debt limit, it’s critical that Treasury have updated information on the magnitude and timing of agency payments. As in prior debt limit episodes, Treasury will continue to regularly communicate with all aspects of the federal government on their planned expenditures.”

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

In a letter Monday to lawmakers, Treasury Secretary Janet L. Yellen affirmed that Congress may have only until June 1 before the federal government exhausts its supply of cash, though she again predicted that Treasury may be able to hold out until “early June.” Some Wall Street forecasters have said the true X-date – the day when the government finally misses a payment – is likely June 8 or 9.

With a big influx of quarterly tax payments expected to arrive in Treasury’s coffers on June 15, administration officials are looking for ways to hoard cash and eke out a few more days. If they can make it to June 15, the surge in revenue might give Treasury enough funding to push the X-date into July, when a fresh round of accounting measures would become available, perhaps allowing them to push the prospect of default even further into the future.

“It’s possible they have some tricks up their sleeves to get to June 15,” said Marc Goldwein, senior vice president at the Committee for a Responsible Federal Budget, a Washington-based think tank. “And if they get to June 15, they can go a lot longer.”

Administration officials are not banking on this strategy. Yellen has been adamant that the only way to avoid calamity is for Congress to raise the debt ceiling before June. Independent budget experts have stressed that no good legal options exist for significantly extending the amount of cash Treasury has on hand.

Meanwhile, some experts fear that extending the deadline could have the unintended consequence of creating more uncertainty among lawmakers, which could take the pressure off their rush to reach an agreement to raise the $31.4 trillion debt ceiling – even as the imperative for congressional action becomes increasingly urgent.

Brian Riedl, a policy analyst at the Manhattan Institute, a libertarian-leaning think tank, said it is unclear if Treasury can find much in available funds rummaging through the nation’s couch cushions.

“Washington is borrowing $100 billion a month, and the odds of finding a significant pile of cash that hadn’t gone noticed is between slim and none,” Riedl said.

If the United States does get to the brink, Biden aides already are exploring unilateral options for staving off what many economists believe would be a global economic crisis. One administration official, speaking on the condition of anonymity to describe internal government deliberations, agreed that “we’re looking under the couch cushions.” But, the person said, “it’s a very large couch.”

Administration officials declined to provide details about the actions under consideration, but outside analysts outlined some likely options.

Alec Phillips, the chief U.S. political economist at Goldman Sachs Research, pointed to “a little belt tightening” as one option, in which the Treasury Department could direct agencies – such as the Defense Department and the Centers for Medicare and Medicaid Services – to slow down their process for submitting payments. That would not be the same as ordering them to cease payments, but it could slow the flow of money from Treasury coffers.

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

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

Still, these ideas have their downsides.

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

“I don’t believe that any career official in any agency would risk violating [that law] by purposefully delaying a payment in order to get around the X-date,” said David Vandivier, who served as deputy assistant secretary for budget and tax in the Treasury’s legislative affairs office during the Obama administration and is now executive director of the Psaros Center for Financial Markets and Policy at Georgetown University.

The Treasury Department might find a few additional billions of dollars by tapping the 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 D.C.-based think tank. But that would probably amount to less than a day’s worth of federal payments.

Akabas said other options – such as slowing payments or raiding trust funds – would entail other risks. The Biden administration has resisted calls to end the debt ceiling standoff by invoking the 14th Amendment or minting a $1 trillion coin, actions they view as risky and subject to legal challenge. The current search for ways to prolong the X-date could similarly plunge the administration into uncharted waters.

More dramatic options are available. Biden has the authority to sell U.S. assets such as parklands or federal buildings to raise money, but that would almost certainly spark a political backlash. Dean Baker, an economist at the Center for Economic and Policy Research, has noted that the president could sell off a portion of the Treasury’s $500 billion in gold reserves.

There is no indication that either idea is under consideration, though Treasury Secretary James A. Baker III threatened to sell gold bonds during a similar debt ceiling standoff in the 1980s.

“There are measures they could consider, like effectively instructing agencies to wait until bills are due to make them, which could slow down bill payments. But they would be a really big undertaking. And I’m not sure how much they would even delay the X-date,” Akabas said.

He added: “We’ve been through this exercise dozens of times before. So if there was something readily available, you think we would have heard about it.”