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The debt limit since 2011.

Summary

The Constitution grants Congress the power to borrow money on the credit of the United States-- one part of its power of the purse--and thus mandates that Congress exercise control over federal debt. Control of debt policy has at times provided Congress with a means of raising concerns regarding fiscal policies. Debates over federal fiscal policy have been especially animated in recent years. The accumulation of federal debt accelerated in the wake of the 2007-2008 financial crisis and subsequent recession. Rising debt levels, along with continued differences in views of fiscal policy, led to a series of contentious debt limit episodes in recent years.

In 2011, federal debt had reached its legal limit on May 16, prompting then Treasury Secretary Timothy Geithner to declare a debt issuance suspension period, allowing certain extraordinary measures to extend Treasury's borrowing capacity. That debt limit episode was resolved on August 2, 2011, when President Obama signed the Budget Control Act of 2011 (BCA; S. 365; P.L. 112-25). The BCA included provisions aimed at deficit reduction and allowing the debt limit to rise in three stages, the latter two subject to congressional disapproval. Once the BCA was enacted, a presidential certification triggered a $400 billion increase, raising the debt limit to $14,694 billion, and a second $500 billion increase on September 22, 2011, as a disapproval measure (H.J.Res. 77) only passed the House. A January 12, 2012, presidential certification triggered a third, $1,200 billion increase on January 28, 2012, although the House passed a disapproval measure. Federal debt again reached its limit on December 31, 2012, and extraordinary measures were then used to allow payment of government obligations until February 4, 2013, when H.R. 325, which suspended the debt limit until May 19, 2013, was signed into law (P.L. 113-3). As of May 19, the debt limit was set at $16,699 billion and extraordinary measures were again employed. On September 25, Treasury Secretary Lew notified Congress that the government would exhaust its borrowing capacity around October 17.

On October 16, 2013, Congress passed and the President signed a continuing resolution (H.R. 2775; P.L. 113-46) that included a suspension of the debt limit that ended on February 7, 2014. While the Treasury Secretary can employ extraordinary measures to meet federal obligations, those measures are unlikely to extend the U.S. Treasury's ability to meet federal obligations as long as in other recent debt limit episodes because of the volume of individual income tax refunds issued in February and March. Secretary Lew declared a debt issuance suspension period on February 10, 2014, scheduled to last until February 27, 2014. After that date, according to Lew, the U.S. Treasury could exhaust its borrowing capacity. Other forecasters expected that federal obligations could be met until mid-March and even later in fortuitous circumstances. Treasury cash flow forecasts are subject to significant uncertainties, especially in the tax refund season. On February 11, 2014, the House voted to suspend the debt limit (S. 540) through March 15, 2015. The Senate approved the measure the following day.

Total federal debt can increase in two ways. First, through debt increases when the government sells debt to the public to finance budget deficits and acquire the financial resources needed to meet its obligations. This increases debt held by the public. Second, through debt increases when the federal government issues debt to certain government accounts, such as the Social Security, Medicare, and Transportation trust funds, in exchange for their reported surpluses. This increases debt held by government accounts. The sum of debt held by the public and debt held by government accounts is the total federal debt. Surpluses reduce debt held by the public, while deficits raise it. This report will be updated as events warrant.

Contents

Federal Debt Policy and the Debt Limit
   Extraordinary Measures and Debt Issuance Suspension Periods
   Recent Increases in the Debt Limit
The 2011 Debt Limit Episode
   The 2011 Debt Ceiling Episode Begins
      Proposed Solutions in the Spring of 2011
   The Budget Control Act of 2011
      Debt Limit Increases Under the BCA
The Debt Limit in 2013
   Debt Limit Reached at End of December 2012
   Suspension of the Debt Limit Until May 19, 2013
      Replenishing the U.S. Treasury's Extraordinary Measures
      Debt Limit Reset and Return of Extraordinary Measures in
         Mid-May 2013
   Debt Limit Forecasts in 2013
      Debt Prioritization
   Resolution of the Debt Limit Issue in October 2013
   Other Proposals Regarding the Debt Limit in October 2013
The Debt Limit in Early 2014
   Debt Limit Forecasts in Late 2013 and 2014
   The Debt Limit Episode in 2014 Compared to 2011 and 2013
   Expiration of the Debt Limit Suspension in 2014
   Debt Limit Again Suspended Until March 2015

Figures

Figure 1. Yields on Selected Treasury Bills that Mature After
Projected Date of Exhaustion of Borrowing Capacity

Figure 2. Goldman Sachs Projections of U.S. Treasury Headroom
Under Debt Limit

Tables

Table 1. Increases in the Debt Limit 1993-2014

Contacts

Author Contact Information


February 12, 2014

Federal Debt Policy and the Debt Limit

The Constitution grants Congress the power to borrow money on the credit of the United States-- one part of its power of the purse--and thus mandates that Congress exercise control over federal debt. Control of debt policy has at times provided Congress with a means of expressing views on appropriate fiscal policies.

Before 1917 Congress typically controlled individual issues of debt. In September 1917, while raising funds for the United States' entry into World War I, Congress also imposed an aggregate limit on federal debt in addition to individual issuance limits. Over time, Congress granted Treasury Secretaries more leeway in debt management. In 1939, Congress agreed to impose an aggregate limit that gave the U.S. Treasury authority to manage the structure of federal debt. (1)

The statutory debt limit applies to almost all federal debt. (2) The limit applies to federal debt held by the public (that is, debt held outside the federal government itself) and to federal debt held by the government's own accounts. Federal trust funds, such as Social Security, Medicare, Transportation, and Civil Service Retirement accounts, hold most of this internally held debt. (3) For most federal trust funds, net inflows by law must be invested in special federal government securities. (4) When holdings of those trust funds increase, federal debt subject to limit will therefore increase as well. The government's on-budget fiscal balance, which excludes the net surplus or deficit of the U.S. Postal Service and the Social Security program, does not directly affect debt held in government accounts. (5)

The change in debt held by the public is mostly determined by the government's surpluses or deficits. (6) The net expansion of the federal government's balance sheet through loan programs also increases the government's borrowing requirements. Under federal budgetary rules, however, only the net subsidy cost of those loans is included in the calculation of deficits. (7)

Extraordinary Measures and Debt Issuance Suspension Periods

Congress has authorized the Treasury Secretary to invoke a "debt issuance suspension period," which triggers the availability of extraordinary measures, which are special strategies to handle cash and debt management. Actions taken in the past include suspending sales of non-marketable debt, postponing or downsizing marketable debt auctions, and withholding receipts that would be transferred to certain government trust funds. In particular, extraordinary strategies include suspending investments in Civil Service Retirement and Disability Fund (CSRDF) and the G-Fund of the Federal Employees' Retirement System (FERS), as well as redeeming a limited amount of CSRDF securities. (8) The Treasury Secretary is also mandated to make those funds whole after the resolution of a debt limit episode. (9)

The amount of time that extraordinary measures allow the U.S. Treasury to extend its borrowing capacity depends on the pace of deficit spending, the timing of cash receipts and outlays, and other technical factors. Treasury cash flow projections are subject to significant uncertainties, which further complicate attempts to estimate how long extraordinary measures would enable the federal government to meet its financial obligations. Cash flow projections require analyses of federal spending patterns, the pace of federal debt redemptions and refinancings, and the inflow of receipts, each of which is subject to uncertainties. Estimates calculated by others of when Treasury would reach the debt limit and how long extraordinary measures would extend federal borrowing capacity have typically been close to Treasury's estimates. (10) The U.S. Treasury Inspector General reported in 2012 that "the margin of error in these estimates at a 98 percent confidence level is plus or minus $18 billion for one week into the future and plus or minus $30 billion for two weeks into the future." (11)

An impending debt ceiling constraint presents more than one deadline. A first deadline is the exhaustion of borrowing capacity. The U.S. Treasury, however, could continue to meet obligations using available cash balances. As cash balances run down, however, other complications could emerge. Low cash balances could complicate federal debt management and Treasury auctions. (12) The Government Accountability Office (GAO) has also noted that debt limit episodes generate severe strains for Treasury staff, especially when its room for maneuver is severely restricted. (13) Finally, if the U.S. Treasury were to run out of cash, the Treasury Secretary would face difficult choices in how to comply simultaneously with the debt limit and the mandate to pay federal obligations in a timely fashion.

Severe financial dislocation could result if the U.S. Treasury were unable to make timely payments. (14) For example, repo lending arrangements, which rely heavily on Treasury securities for collateral, could become more expensive or could be disrupted. (15) "Repo" is short for repurchase agreement, which provides a common means of secured lending among financial institutions. Repo lending rates rose sharply in early August 2011 during the 2011 debt limit episode, but fell to previous levels once that episode was resolved. (16)

The Federal Reserve Open Market Committee indicated in an October 16, 2013, discussion, that "in the event of delayed payments on Treasury securities" that discount window and other operations would proceed "under the usual terms." (17) That statement has been taken to imply that the Federal Reserve would be "prepared to backstop the Treasury market in the event of a political deadlock." (18) In addition, the Federal Reserve Bank of New York issued a description of contingency plans in December 2013 in the event of Treasury payment delays, but warned that such measures "only modestly reduce, not eliminate, the operational difficulties posed by a delayed payment on Treasury debt. Indeed, even with these limited contingency practices, a temporary delayed payment on Treasury debt could cause significant damage to, and undermine confidence in, the markets for Treasury securities and other assets." (19)

Recent Increases in the Debt Limit

Table 1 presents debt limit changes over the past two decades. The debt limit was modified six times from 1993 through 1997. Two of those modifications were enacted to prevent the debt limit restriction from delaying payment of Social Security benefits in March 1996 before a broader increase in the debt was passed at the end of that month. (20) After 1997, debt limit increases were unnecessary due to the appearance of federal surpluses that ran from FY1998 through FY2001. Since FY2002 the federal government has run persistent deficits, which have been ascribed to major tax cuts enacted in 2001 and 2003 and higher spending. (21) Those deficits required a series of increases in the debt limit.

The 2011 Debt Limit Episode

The 2011 debt limit episode attracted far more attention than other recent debt limit episodes. In mid-2011 several credit ratings agencies and investment banks expressed concerns about the consequences to the financial system and the economy if the U.S. Treasury were unable to fund federal obligations. (22) Many economists and financial institutions stated that if the market associated Treasury securities with default risks, the effects on global capital markets could be significant. (23)

Debate during the 2011 debt limit episode reflected a growing concern with the fiscal sustainability of the federal government. While projections issued in 2011 indicated that federal deficits would shrink over the next half decade, deficits later in the decade were expected to rise. (24) Without major changes in federal policies, the amount of federal debt would increase substantially. CBO has repeatedly warned that the current trajectory of federal borrowing is unsustainable and could lead to slower economic growth in the long run as debt rises as a percentage of GDP. (25) Unless federal policies change, Congress would repeatedly face demands to raise the debt limit to accommodate the growing federal debt in order to provide the government with the means to meet its financial obligations.

The next section provides a brief chronology of events from the 2011 debt limit episode.

The 2011 Debt Ceiling Episode Begins

On May 16, 2011, U.S. Treasury Secretary Timothy Geithner announced that the federal debt had reached its statutory limit and declared a debt issuance suspension period, which would allow certain extraordinary measures to extend Treasury's borrowing capacity until about August 2, 2011. (26) Had the U.S. Treasury exhausted its borrowing authority, it could have used cash balances to meet obligations for some period of time.

Over the course of the 2011 debt limit episode Treasury estimates of when the debt limit would begin to bind and how long extraordinary measures would suffice to meet federal obligations shifted. For instance, in April 2011 the U.S. Treasury had projected that its borrowing capacity, even using extraordinary measures, would be exhausted by about July 8, 2011. (27) The Treasury Secretary, in a letter to Congress dated May 2, 2011, had indicated that he would declare a debt issuance suspension period on May 16, unless Congress acted beforehand, which would allow certain extraordinary measures to extend Treasury's borrowing capacity until early August 2011. (28) On July 1, 2011, the U.S. Treasury confirmed its view that its borrowing authority would be exhausted on August 2, the date cited in Treasury Secretary Geithner's May 16, 2011, letter that invoked the debt issuance suspension period. (29)

Proposed Solutions in the Spring of 2011

A bill (H.R. 1954) to raise the debt limit to $16,700 billion was introduced on May 24 and was defeated in a May 31, 2011, House vote of 97 to 318. The House passed the Cut, Cap, and Balance Act of 2011 (H.R. 2560; 234-190 vote) on July 19, 2011. The measure would have increased the statutory limit on federal debt from $14,294 billion to $16,700 billion once a proposal for a constitutional amendment requiring a balanced federal budget was transmitted to the states. On July 22, the Senate tabled the bill on a 51-46 vote.

Some commentators in early 2011 suggested that cutting federal spending could slow the growth in federal debt enough to avoid an increase in the debt limit. The scale of required spending reductions, as of the middle of FY2011, would have been large. For example, at the start of the third quarter of FY2011 on April 1, 2011, federal debt was within $95 billion of its limit. According to CBO baseline estimates issued at the time, the expected deficit for the remainder of FY2011 would be about $570 billion. Reaching the end of FY2011 on September 30, 2011, without an increase in the debt limit or the use of extraordinary measures would have thus required a spending reduction of at least $570 billion, or about 85% of discretionary spending for the rest of that fiscal year. (30)

Some have suggested that the Fourteenth Amendment (Section 4), which states that "(t)he validity of the public debt of the United States ... shall not be questioned," could provide the President with authority to ignore the statutory debt limit. President Obama has rejected such claims, as have most legal analysts. (31)

The Budget Control Act of 2011

On July 25, 2011, the Budget Control Act of 2011 was introduced in different forms by both House Speaker Boehner (House Substitute Amendment to S. 627) and Majority Leader Reid (S.Amdt. 581 to S. 1323). Subsequently, on August 2, 2011, President Obama signed into law a substantially revised compromise measure (Budget Control Act; BCA; P.L. 112-25), following House approval by a vote of 269-161 on August 1, 2011, and Senate approval by a vote of 74-26 on August 2, 2011. (32) This measure included numerous provisions aimed at deficit reduction, and would allow a series of increases in the debt limit of up to $2,400 billion ($2.4 trillion) subject to certain conditions. (33) These provisions eliminated the need for further increases in the debt limit until early 2013.

In particular, the BCA included major provisions that

* imposed discretionary spending caps, enforced by automatic spending reductions, referred to as a "sequester"; (34)

* established a Joint Select Committee on Deficit Reduction, whose recommendations would be eligible for expedited consideration;

* required a vote on a joint resolution on a proposed constitutional amendment to mandate a balanced federal budget; (35) and

* instituted a mechanism allowing for the President and Treasury Secretary to raise the debt ceiling, subject to congressional disapproval.

Debt Limit Increases Under the BCA

The legislation provides a three-step procedure by which the debt limit can be increased. First, the debt limit was raised by $400 billion, to $14,694 billion on August 2, 2011, following a certification of the President that the debt was within $100 billion of its legal limit. (36)

A second increase of $500 billion occurred on September 22, 2011, which was also triggered by the President's certification of August 2. The second increase, scheduled for 50 days after that certification, was subject to a joint resolution of disapproval. Because such a resolution could be vetoed, blocking a debt limit increase would be challenging. The Senate rejected a disapproval measure (S.J.Res. 25) on September 8, 2011, on a 45-52 vote. The House passed a disapproval measure (H.J.Res. 77) on a 232-186 vote, although the Senate declined to act on that measure. The resulting increase brought the debt limit to $15,194 billion.

In late December 2011, the debt limit came within $100 billion of its statutory limit, which triggered a provision allowing the President to issue a certification that would lead to a third increase of $1,200 billion. (37) By design, that increase matched budget reductions slated to be made through sequestration and related mechanisms over the FY2013-FY2021 period. That increase was also subject to a joint resolution of disapproval. The President reportedly delayed that request to allow Congress to consider a disapproval measure. (38) On January 18, 2012, the House passed such a measure (H.J.Res. 98) on a 239-176 vote. The Senate declined to take up a companion measure (S.J.Res. 34) and on January 26, 2012, voted down a motion to proceed (44-52) on the House-passed measure (H.J.Res. 98), thus clearing the way for the increase, resulting in a debt limit of $16,394 billion.

The third increase could also have been triggered in two other ways. (39) A debt limit increase of $1,500 billion would have been permitted if the states had received a balanced budget amendment for ratification. A measure (H.J.Res. 2) to accomplish that, however, failed to reach the constitutionally mandated two-thirds threshold in the House in a 261-165 vote held on November 18, 2011. (40) The debt limit could also have been increased by between $1,200 billion and $1,500 billion had recommendations from the Joint Select Committee on Deficit Reduction, popularly known as the Super Committee, been reported to and passed by each chamber. If those recommendations had been estimated to achieve an amount between $1,200 billion and $1,500 billion, the debt limit increase would be matched to that figure. The Joint Select Committee, however, was unable to agree on a set of recommendations.

The Debt Limit in 2013

Debt Limit Reached at End of December 2012

On December 26, 2012, the U.S. Treasury stated that the debt would reach its limit on December 31 and that the Treasury Secretary would declare a debt issuance suspension period to authorize extraordinary measures (noted above, described below) that could be used to meet federal payments for approximately two months. (41) As predicted, federal debt did reach its limit on December 31, when large biannual interest payments, in the form of Treasury securities, were made to certain trust funds. (42)

The U.S. Treasury stressed that these extraordinary measures would be exhausted more quickly than in recent debt limit episodes for various technical reasons. (43) A January 14, 2013, letter from Treasury Secretary Geithner also estimated that extraordinary measures would be exhausted sometime between mid-February or early March 2013. (44) CBO had previously estimated that federal debt would reach its limit near the end of December 2012, and that the extraordinary measures could be used to fund government activities until mid-February or early March 2013. (45) During the 112th Congress, Speaker John Boehner had stated that a future debt limit increase should be linked to spending cuts of at least the same magnitude, a position that reflects the structure of the Budget Control Act. (46)

Suspension of the Debt Limit Until May 19, 2013

House Republicans decided on January 18, 2013, to propose a three-month suspension of the debt limit tied to a provision that would delay Members' salaries in the event that their chamber of Congress had not agreed to a budget resolution. (47) H.R. 325, according to its sponsor, would allow Treasury to pay bills coming due before May 18, 2013. A new debt limit would then be set on May 19. (48) The measure would also cause salaries of Members of Congress to be held in escrow "(i)f by April 15, 2013, a House of Congress had not agreed to" a budget resolution. (49) Such a provision, however, could raise constitutional issues under the Twenty-Seventh Amendment.

On January 23, 2013, the House passed H.R. 325, which suspended the debt limit until May 19, 2013, on a 285-144 vote. The Senate passed the measure on January 31 on a 64-34 vote; it was then signed into law (P.L. 113-3) on February 4.

Replenishing the U.S. Treasury's Extraordinary Measures

Once H.R. 325 was signed into law on February 4, the U.S. Treasury replenished funds that had been used to meet federal payments, thus resetting its ability to use extraordinary measures. As of February 1, 2013, the U.S. Treasury had used about $31 billion in extraordinary measures. (50) Statutory language that grants the Treasury Secretary the authority to declare a "debt issuance suspension period" (DISP), which permits certain extraordinary measures, also requires that "the Secretary of the Treasury shall immediately issue" amounts to replenish those funds once a debt issuance suspension period (DISP) is over. (51) A DISP extends through "any period for which the Secretary of the Treasury determines for purposes of this subsection that the issuance of obligations of the United States may not be made without exceeding the public debt limit." (52)

Shortly after the declaration of a new debt issuance suspension period in February 2013, Jacob Lew was confirmed as Treasury Secretary, replacing Timothy Geithner. (53)

Debt Limit Reset and Return of Extraordinary Measures in Mid-May 2013

Once the debt limit suspension lapsed after May 18, 2013, the U.S. Treasury reset the debt limit at $16,699 billion, or $305 billion above the previous statutory limit. On May 20, 2013, the first business day after the expiration of the suspension, debt subject to limit was just $25 million below the limit.

Some Members, as noted above, stated that H.R. 325 (P.L. 113-3) was intended to prevent the U.S. Treasury from accumulating cash balances. The U.S. Treasury's operating cash balances at the start of May 20, 2013 ($34 billion), were well below balances ($60 billion) at the close of February 4, 2013, when H.R. 325 was enacted. (54) Some experienced analysts had stated that the exact method by which the debt limit would be computed according to the provisions of P.L. 1133 were not fully clear. (55) The U.S. Treasury has not provided details of how it computed the debt limit after the suspension lapsed.

Treasury Secretary Jacob Lew notified Congress on May 20, 2013, that he had declared a new debt issuance suspension period (DISP), triggering authorities that allow the Treasury Secretary to use extraordinary measures to meet federal obligations until August 2. (56) On August 2, 2013, Secretary Lew notified Congress that the DISP would be extended to October 11, 20 1 3. (57) In those notifications, as well in other communications, Secretary Lew urged Congress to raise the debt limit in a "timely fashion."

Debt Limit Forecasts in 2013

How long the U.S. Treasury could pay federal obligations absent an increase in the debt limit depends on economic conditions, which affect tax receipts and spending on some automatic stabilizer programs, and the pace of federal spending. Special dividends from mortgage giants Fannie Mae and Freddie Mac in 2013 extended the U.S. Treasury's ability to meet federal obligations. Stronger federal revenue collections and a slower pace of federal outlays in 2013 have reduced the deficit compared to previous years. (58)

Treasury Secretary Lew sent several letters to congressional leaders in 2013 regarding the debt limit, including notifications of the use of extraordinary measures and forecasts of when the U.S. Treasury's borrowing authority would be exhausted. On September 25, 2013, Secretary Lew notified Congress that the U.S. Treasury would exhaust its borrowing capacity no later than October 17.59 At that point, the U.S. Treasury would have had about $30 billion in cash balances on hand to meet federal obligations. In the absence of a debt limit increase, those cash balances would then dwindle. Independent analysts had estimated that those cash balances would be exhausted by the end of October or very early November. (60)

Market Reactions to Impending Debt Limit Deadlines

In the past, some financial markets have reacted to impending debt limit deadlines, signaling concerns about the federal government's ability to meet obligations in a timely manner. In early October 2013, the U.S. Treasury issued a brief that outlined how various measures of economic confidence, asset prices, and market volatility responded to the debt limit episode in the summer of 2011, and the prospect that the federal government might not have been able to pay its obligations in a timely fashion. (61)

In October 2013, yields for Treasury bills maturing in the weeks after October 17--when the U.S. Treasury's borrowing capacity was projected to be exhausted--rose sharply relative to yields on Treasury securities maturing in 2014. Some investors expressed reluctance to hold Treasury securities that might be affected by debt limit complications. Fidelity Investments, J. P. Morgan Investment Management Inc., and certain other funds stated in October 2013 that they had sold holdings of Treasury securities scheduled to mature or to have coupon payments after October 16. (62)

Figure 1 shows secondary market yields on Treasury bills set to mature after the projected date when the Treasury's borrowing capacity would be exhausted. (63) The horizontal axis shows days before the end of the DISP, and the vertical scale shows basis points (bps). For instance, the yield for the Treasury bill maturing October 24, 2013 (trend shown in red above) rose from close to zero at the start of the month to 46 bps on October 15, 2013. Those yields were about 10 times larger than for similar bills that mature in calendar year 2014. (64) After enactment of a debt limit measure (H.R. 2775; P.L. 113-46) on October 16, 2013, however, those yields returned to their previous levels.

Hearings in 2013

On January 22, 2013, the House Ways and Means Committee held hearings on the history of the debt limit and how past Congresses and Presidents have negotiated changes in the debt limit. (65) On April 10, 2013, the House Ways and Means Subcommittee on Oversight held hearings on federal debt and fiscal management when the debt limit binds. (66) The Joint Economic Committee held hearings on the economic costs of uncertainty linked to the debt limit on September 18, 2013. (67)

On October 10, 2013, the Senate Finance Committee held hearings on the debt limit and heard testimony from Treasury Secretary Jacob Lew. (68) On the same morning, the Senate Banking Committee held hearings on the effects of a possible federal default on financial stability and economic growth, and heard testimony from heads of financial industry trade associations. (69)

Fannie Mae and Freddie Mac Dividend Payments to the U.S. Treasury

In September 2008, Fannie Mae and Freddie Mac entered voluntary conservatorship. (70) As part of their separate conservatorship agreements, Treasury agreed to support Fannie Mae and Freddie Mac in return for senior preferred stock that would pay dividends. Losses for Fannie Mae and Freddie Mac while in conservatorship have totaled $123 billion. Each has been profitable, however, since the start of 2012, when the recovery of the residential housing sector began to be reflected in their balance sheets. For a profitable firm, some past losses can offset future tax liabilities and would be recognized on its balance sheet as a "deferred tax asset" under standard accounting practices. Fannie Mae and Freddie Mac wrote down the value of their tax assets because their return to profitability was viewed as unlikely.

The return of Fannie Mae and Freddie Mac to profitability opened the possibility for a reversal of those writedowns. (71) On May 9, 2013, Fannie Mae announced that it would reverse the writedown of its deferred tax assets. (72) The Treasury agreements, as amended, set the dividend payments to a sweep (i.e., an automatic transfer at the end of a quarter) of Fannie Mae's and Freddie Mac's net worth. Thus a reversal of that writedown of the deferred tax assets triggered a payment of about $60 billion from Fannie Mae to the U.S. Treasury on June 28, 2013. (73) The U.S. Treasury received $66.3 billion from Fannie Mae and Freddie Mac on that date. (74) Fannie Mae also paid a $10.2 billion dividend to the federal government in September 2013 and an $8.6 billion at the end of December 2013. In November 2013, Freddie Mac announced that it had decided to reverse its writedown of deferred tax assets, resulting in a $30.4 billion dividend payment to the U.S. Treasury in December 2013. (75)

Debt Prioritization

On April 30, 2013, the House Ways and Means Committee reported H.R. 807, which would grant the Treasury Secretary the authority to borrow to fund principal and interest payments on debt held by the public and the Social Security trust funds if the debt limit were reached. (76) The Treasury Secretary would also have had to submit weekly reports to Congress after that authority were exercised. On May 9, 2013, the House passed and amended version of H.R. 807. (77) The House also passed a version of H.J.Res. 59 that incorporated the text of H.R. 807 on September 20. On September 27, the Senate passed an amended version of the measure that did not contain provisions from H.R. 807. The Obama Administration indicated that it would veto H.R. 807 or H.J.Res. 59 containing similar provisions, were either to be approved by Congress. (78) The October 2013 debt limit measure (H.R. 2775; P.L. 113-46) contained no payment prioritization provisions.

H.R. 807 would have affected one aspect of the U.S. Treasury's financial management of the Social Security program, but would not alter other aspects. If the debt limit were reached, the U.S. Treasury could still face constraints that could raise challenges in financial management. The U.S. Treasury is responsible for (1) making Social Security beneficiary payments; (2) reinvesting Social Security payroll taxes and retirement contributions in special Treasury securities held by the Social Security trust fund; and (3) paying interest to the Social Security trust funds, in the form of special Treasury securities, at the end of June and December. (79) Those special Treasury securities, either funded via Social Security payroll receipts or biannual interest payments, are subject to the debt limit. Thus, sufficient headroom under the debt limit is needed to issue those special Treasury securities. If the debt limit were reached and extraordinary measures were exhausted, the Treasury Secretary's legal requirement to reinvest Social Security receipts by issuing special Treasury securities could at times be difficult to reconcile with his legal requirement not to exceed the statutory debt limit.

Resolution of the Debt Limit Issue in October 2013

On September 25, Treasury Secretary Lew notified Congress that the government would exhaust its borrowing capacity around October 17 according to updated estimates. At that point, the U.S. Treasury would have had a projected cash balance of only $30 billion to meet federal obligations.

On October 16, 2013, Congress passed a continuing resolution (Continuing Appropriations Act, 2014; H.R. 2775; P.L. 113-46) that included a provision to allow a suspension of the debt limit. That measure passed the Senate on an 81-18 vote. (80) The House then passed the measure on a 285144 vote. The President signed the bill (P.L. 113-46) early the next morning. The measure suspends the debt limit until February 8, 2014, once the President certified that the U.S. Treasury would be unable to meet existing commitments without issuing debt. (81) The President sent congressional leaders a certification on October 17, 2013, to trigger a suspension of the debt limit through February 7, 2014. (82)

That suspension, however, was subject to a congressional resolution of disapproval. If a resolution of disapproval had been enacted, the debt limit suspension would end on that date. Specific expedited procedures in each chamber governed the consideration of the resolution of disapproval. The resolution, if passed, was subject to veto. A resolution of disapproval (H.J.Res. 99) was passed in the House on October 20, 2013, on a 222-191 vote. A similar measure, S.J.Res. 26, was not approved by the Senate, so the debt limit increase was not blocked. (83)

The debt limit suspension ended on February 7, and a limit was set to reflect the amount of debt necessary to fund government operations before the end of the suspension. The U.S. Treasury was precluded in P.L. 113-46 from accumulating excess cash reserves that might have allowed an extension of extraordinary measures.

The debt limit provisions enacted in October 2013 resemble provisions enacted in 2011 and earlier in 2013. For example, the Budget Control Act of 2011 (P.L. 112-25) also provided for a congressional resolution of disapproval of a debt limit increase. The suspension of the debt limit in H.R. 2775 resembles the suspension enacted in February 2013 (H.R. 325; P.L. 113-3). (84)

Other Proposals Regarding the Debt Limit in October 2013

Passage of the Continuing Appropriations Act, 2014 was preceded by other proposals to modify the debt limit. On October 8, 2013, Senate Majority Leader Reid introduced S. 1569, a measure intended to ensure complete and timely payment of federal obligations. The measure would have extended the suspension of the debt limit enacted in February 2013 (P.L. 113-3). On October 15, 2013, an announcement of a hearing on a proposal to amend the Senate amendment to H.J.Res. 59 appeared on the House Rules Committee website. That hearing, according to a subsequent announcement, was postponed that evening. The measure would extend the debt limit through February 15, 2014, and restrict the Treasury Secretary's ability to employ extraordinary measures through April 15, 2014. The measure would also extend discretionary funding at "sequester levels" through December 15, 2013. (85)

The Debt Limit in Early 2014

As the end of the debt limit suspension neared, the U.S. Treasury began to warn Congress of the consequences on not raising the debt limit. While the Treasury could again employ extraordinary measures after the suspension ended after February 7, 2014, its ability to continue meeting federal obligations would be limited by large outflows of cash resulting from individual income tax refunds. In December 2013,

the U.S. Treasury had notified congressional leaders that according to its estimates, extraordinary measures would extend its borrowing authority "only until late February or early March 2014." (86) On January 22, 2014, Secretary Lew called for an increase in the debt limit before the end of debt limit suspension on February 7, 2014, or the end of February.

After the suspension ended on February 7, 2014, the Treasury Secretary invoked authorities to use various extraordinary measures. Congress, however, moved quickly in the following week to address the debt limit issue. On February 11, the House approved a measure to suspend the debt limit until March 15, 2015. The Senate concurred the next day.

Debt Limit Forecasts in Late 2013 and 2014

In late November 2013, CBO issued an analysis of Treasury cash flows and available extraordinary measures. (87) Treasury, according to those estimates, might exhaust its ability to meet federal obligations in March. Because Treasury cash flows can be highly uncertain during tax refund season, CBO stated that that date could arrive as soon as February 2014 or as late as early June.

Goldman Sachs had estimated that Treasury would probably exhaust its headroom in mid to late March, but might in fortuitous circumstances be able to meet its obligations until June. (88) Figure 2 presents Goldman Sachs estimates of Treasury's headroom--the sum of projected cash balances and remaining borrowing authority under the debt limit. While Goldman Sachs and other independent forecasters noted that that the U.S. Treasury might possibly avoid running out of headroom in late March or early April, waiting until mid-March to address the debt limit could have raised serious risks for the U.S. government's financial situation. (89)

As noted above, in January 2014, Secretary Lew warned Congress that extraordinary measures would more likely be exhausted in late February than in early March, according to updated estimates. (90) In the first week of February 2014, Secretary Lew stated that the U.S. Treasury could not be certain that extraordinary measures would last beyond February 27, 2014. (91)

The Debt Limit Episode in 2014 Compared to 2011 and 2013

The timing of the end of the debt limit suspension in 2014 limited the Treasury Secretary's ability to pay obligations using extraordinary measures compared to debt limit episodes in 2011 or 2013. (92) During February and March, a high volume of individual income tax refunds leads to large cash outflows, because taxpayers who expect to receive refunds tend to file early. (93) Those who expect to pay additional amounts to the Treasury tend to file closer to the traditional April 15 filing deadline. Economic conditions, however, may be somewhat stronger in early 2014 than in 2013, which would enhance federal receipts, countering the cash outflow. Those additional receipts were considered unlikely to be large enough to offset outflows of tax refunds in February and March to an extent that would allow Treasury to meet its obligations through April. (94) Because extraordinary measures that might have been invoked in February 2014 were unlikely to extend the U.S. Treasury's ability to meet obligations into April 2014, certain other options to expand extraordinary measures used in recent episodes would not have been be available. (95) For instance, extraordinary measures used in the 2011 debt limit episode totaled $299.5 billion. (96) That episode included a June 30 date on which some securities held by the Civil Service Retirement and Disability Fund (CSRDF) matured. Those funds then became available to meet other federal obligations. Moreover, the $60 billion Fannie Mae special dividend received by the U.S. Treasury at the end of June 2013 will not recur in 2014. (97)

Expiration of the Debt Limit Suspension in 2014

On February 7, 2014, the debt limit suspension ended and the U.S. Treasury reset the debt limit to $17,212 billion. (98) On the same day, the U.S. Treasury also suspended sales of State and Local Government Series (SLGS), the first of its extraordinary measures. (99) On February 10, Secretary Lew notified Congress that he had declared a debt issuance suspension period (DISP) that authorizes use of other extraordinary measures. In particular, during a DISP the Treasury Secretary is authorized to suspend investments in the Civil Service and Retirement and Disability Fund and the G Fund of the Federal Employees' Retirement System. The DISP was scheduled to last until February 27. (100)

Debt Limit Again Suspended Until March 2015

On February 10, 2014, the House Rules Committee posted an amended version of S. 540 that would suspend the debt limit through March 15, 2015. The debt limit would be raised the following day by an amount tied to the amount of borrowing required by federal obligations during the suspension period. The U.S. Treasury would also be prohibited from creating a cash reserve above that level. The measure also would reverse a 1% reduction in the cost-of-living adjustment for certain working-age military retirees. (101) In addition, sequestration of non-exempt mandatory spending would be extended from FY2023 to FY2024. CBO issued a cost estimate of the measure on February 11, 2014. (102)

On February 11, 2014, the House voted 221-201 to suspend the debt limit (S. 540) through March 15, 2015. The amended measure included restrictions on Treasury debt management in the version reported by the Rules Committee, but omitted provisions to reverse reductions in cost-of-living adjustments to working-age military retiree pensions and an extension of non-defense mandatory sequestration. The Senate voted to concur in the House amendment the following day on a 55-43 vote.

Caption: Figure 1. Yields on Selected Treasury Bills that Mature After Projected Date of Exhaustion of Borrowing Capacity

Caption: Figure 2. Goldman Sachs Projections of U.S. Treasury Headroom Under Debt Limit Headroom is projected borrowing authority under the debt limit plus projected cash balances

Author Contact Information

D. Andrew Austin

Analyst in Economic Policy

aaustin@crs.loc.gov, 7-6552

(1) For details, see CRS Report RL31967, The Debt Limit: History and Recent Increases, by D. Andrew Austin and Mindy R. Levit.

(2) Approximately 0.5% of total debt is excluded from debt limit coverage. The Treasury defines "Total Public Debt Subject to Limit" as "the Total Public Debt Outstanding less Unamortized Discount on Treasury Bills and ZeroCoupon Treasury Bonds, old debt issued prior to 1917, and old currency called United States Notes, as well as Debt held by the Federal Financing Bank and Guaranteed Debt." For details, see http://www.treasurydirect.gov. The debt limit is codified as 31 U.S.C. [section]3101.

(3) Although there are hundreds of trust funds, the overwhelming majority are very small. The 12 largest trust funds hold 98.8% of the federal debt held in government accounts. See CRS Report R41815, Overview of the Federal Debt, by D. Andrew Austin.

(4) The National Railroad Retirement Investment Trust, which funds certain railroad retirement benefits, holds a mix of federal and private assets.

(5) In future years, when some trust funds are projected to pay out more than they take in, funds that the Treasury would use to redeem those intergovernmental debts must be obtained via higher taxes or lower government spending.

(6) Federal debt also increases when the U.S. government's balance sheet expands to fund federal credit programs. Seigniorage and other adjustments also affect the level of federal debt. For a crosswalk between the annual federal deficit and the increase in federal debt, see OMB, FY2014 Analytical Perspectives, Table 5-2, Federal Government Financing and Debt.

(7) For details, see CRS Report R42632, Budgetary Treatment of Federal Credit (Direct Loans and Loan Guarantees): Concepts, History, and Issues for the 112th Congress, by James M. Bickley.

(8) For details, see out-of-print CRS Report 95-1109, Authority to Tap Trust Funds and Establish Payment Priorities if the Debt Limit is Not Increased, by Thomas J. Nicola and Morton Rosenberg. Available upon request from the authors. 5 U.S.C. [section]8348(b) defines a debt issuance suspension period as "any period for which the Secretary of the Treasury determines for purposes of this subsection that the issuance of obligations of the United States may not be made without exceeding the public debt limit." After a debt issuance suspension period ends, the Treasury Secretary must report to Congress as soon as possible regarding fund balances and any extraordinary actions taken. For details, see 5 U.S.C. [section]8348(j,k). For a list of extraordinary measures, see U.S. Government Accountability Office, Analysis of 20112012 Actions Taken and Effect of Delayed Increase on Borrowing Costs, GAO-12-701, July 2012, Table 1, p. 8; available at http://www.gao.gov/assets/600/592832.pdf.

(9) 5 U.S.C. [section]8348(j)(3).

(10) Wrightson ICAP, The Money Market Observer, May 2, 2011; Secretary of the U.S. Treasury Timothy Geithner, letter to Majority Leader Harry Reid, dated January 6, 2011, available at http://www.treasury.gov/connect/blog/ Documents/Letter.pdf.

(11) Department of the Treasury, Office of the Inspector General, "Response to Senator Hatch Regarding Debt Limit in 2011," OIG-CA-12-006, August 24, 2013, enclosure 1, p. 2; available at http://www.treasury.gov/about/organizationalstructure/ig/Audit%20Reports%20and%20Testimonies/ Debt%20Limit%20Response%20%28Final%20with%20Signature%29.pdf.

(12) Wrightson ICAP, "Summer Break Issue," Money Market Observer, September 2, 2013.

(13) U.S. Government Accountability Office, Analysis of2011-2012 Actions Taken and Effect of Delayed Increase on Borrowing Costs, GAO-12-701, July 2012, available at http://www.gao.gov/assets/600/592832.pdf.

(14) For details, see testimony from the Senate Banking Committee hearings of October 10, 2013 noted in the following section.

(15) For background, see Tobias Adrian et al., "Repo and Securities Lending," Federal Reserve of New York Staff Report No. 529, revised version February 2013, available at http://www.newyorkfed.org/research/staff_reports/sr529.pdf.

(16) RBC Capital Markets, U.S. Economics and Rates Focus, September 25, 2013.

(17) Federal Reserve, "FOMC Minutes for October 29-30, 2013 Meeting," videoconference meeting of October 16, p. 11; available at http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20131030.pdf.

(18) Wrightson ICAP, "Debt Ceiling Outlook," Money Market Observer, January 27, 2014.

(19) Federal Reserve Bank of New York, Treasury Market Practices Group, Operational Plans for Various Contingencies for Treasury Debt Payments, December 23, 2013, available at http://www.newyorkfed.org/tmpg/ Operations_Contingency_Plans.pdf.

(20) For a description of the budget cycle in FY1966, see CRS Report RS20348, Federal Funding Gaps: A Brief Overview, by Jessica Tollestrup.

(21) See CBO, "Changes in CBO's Baseline Projections Since January 2001," June 7, 2012; http://www.cbo.gov/sites/ default/files/cbofiles/attachments/06-07-ChangesSince2001Baseline.pdf. According to CBO estimates, over the FY2002-FY2011 period legislative changes in federal revenue policies accounted for a change of-$6.1 trillion; legislative changes in spending policies accounted for an estimated increase of $5.6 billion over that period; and concomitant net interest costs resulted in a change of $1.4 trillion; all relative to the FY2001 CBO current-law baseline. Economic and technical factors accounted for about 10% of the divergence between FY2001 baseline projections and actual budget results. The four discretionary subfunctions with the largest real increases in outlays between FY2001 and FY2011 were Defense-Military ($322 billion); Elementary, secondary, and vocational education ($34 billion); Hospital and medical care for veterans ($25 billion); and ground transportation ($18 billion), all expressed in FY2013 dollars. The four mandatory subfunctions with the largest real increases in outlays over the same period were Medicare ($221 billion); Social Security ($196 billion); Health care services ($140 billion); and Unemployment compensation ($86 billion). See also Alan J. Auerbach and William G. Gale, "The Economic Crisis and the Fiscal Crisis: 2009 and Beyond," Tax Notes special report, October 5, 2009.

(22) Reuters, "S&P to Deeply Cut U.S. Ratings If Debt Payment Missed," June 29, 2011. For a summary of statements by the three major ratings agencies, see CRS Report R41932, Treasury Securities and the U.S. Sovereign Credit Default Swap Market, by D. Andrew Austin and Rena S. Miller.

(23) JP Morgan Chase, "The Domino Effect of a US Treasury Technical Default," U.S. Fixed Income Strategy Group Brief, April 19, 2011; Fitch Ratings, "Thinking the Unthinkable--What if the Debt Ceiling Was Not Increased and the US Defaulted?" June 8, 2011.

(24) Congressional Budget Office, An Analysis of the President's Budgetary Proposals for Fiscal Year 2012, April 15, 2011; http://www.cbo.gov/publication/22087.

(25) Congressional Budget Office, The 2013 Long-Term Budget Outlook, September 17, 2013; http://www.cbo.gov/ publication/44521.

(26) Secretary of the U.S. Treasury Timothy Geithner, letter to Majority Leader Harry Reid, dated May 16, 2011, available at http://www.treasury.gov/connect/blog/Documents/20110516Letter%20to%20Congress.pdf.

(27) Secretary of the U.S. Treasury Timothy Geithner, letter to Majority Leader Harry Reid, dated April 4, 2011, available at http://www.treasury.gov/connect/blog/Documents/FINAL%20Letter%2004-042011%20Reid%20Debt%20Limit.pdf.

(28) Secretary of the U.S. Treasury Timothy Geithner, letter to Speaker John Boehner, dated May 2, 2011, available at http://www.treasury.gov/connect/blog/Documents/FINAL%20Debt%20Limit%20Letter%2005-022011%20Boehner.pdf. The same text was sent to all Members.

(29) U.S. Treasury, "Treasury: No Change to August 2 Estimate Regarding Exhaustion of U.S. Borrowing Authority," Press release tg-1225, July 1, 2011, available at http://www.treasury.gov/press-center/press- releases/Pages/tg1225.aspx.

(30) According to the U.S. Treasury's Daily Treasury Statement for April 1, debt subject to limit was $14,198.9 billion, just $95.1 billion below the limit at that time of $14,294 billion; (https://fms.treas.gov/fmsweb/viewDTSFiles?dir=a& fname=11040100.pdf). According to the CBO baseline estimates issued in March 2011 (Congressional Budget Office, An Analysis of the President's Budgetary Proposals for FY2012, April 15, 2011; http://www.cbo.gov/publication/ 22087), the estimated deficit for FY2011 was $1,399 billion and estimated discretionary outlays were $ 1,361 billion. According to the April 2011 CBO Monthly Budget Review (http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/ 121xx/doc12126/mbr_april_2011.pdf), the deficit for the first half of FY2011 was $830 billion.

(31) Adam Liptak, "The 14th Amendment, the Debt Ceiling and a Way Out," New York Times, January 24, 2011; Remarks by the President at University of Maryland Town Hall, available at http://www.whitehouse.gov/the- pressoffice/2011/07/22/remarks-president-university-maryland-town-hall. For a legal analysis, see CRS congressional distribution memorandum, Whether the Public Debt Clause Authorizes the President to Borrow Money in Excess of the Debt Ceiling, December 21, 2012, by Kenneth R. Thomas.

(32) Consideration of this measure began on July 25, 2011, following legislation introduced by House Speaker Boehner (House Substitute Amendment to S. 627) and Majority Leader Reid (S.Amdt. 581 to S. 1323). Speaker Boehner's proposal passed the House on July 29, 2011, by a vote of 218-210. Neither proposal passed in the Senate.

(33) For details, see CRS Report R41965, The Budget Control Act of 2011, by Bill Heniff Jr., Elizabeth Rybicki, and Shannon M. Mahan.

(34) Sequestration is a mechanism that directs the President to cancel budget authority or other forms of budgetary resources in order to reach specified budget reduction targets. Balanced Budget and Emergency Deficit Control Act of 1985 (P.L. 99-177), often known as Gramm-Rudman-Hollings (GRH), introduced sequestration procedures into the federal budget process. Those sequestration procedures were modified in subsequent years to address separation of powers issues and other concerns. For details, see CRS Report R41901, Statutory Budget Controls in Effect Between 1985 and 2002, by Megan S. Lynch. Also see The Budget Control Act and Alternate Defense and Non-Defense Spending Paths, FY2012-FY2021, congressional distribution memorandum, November 16, 2012, available from authors upon request.

(35) See CRS Report R41907, A Balanced Budget Constitutional Amendment: Background and Congressional Options, by James V. Saturno and Megan S. Lynch.

(36) White House, Message from the President to the U.S. Congress, August 2, 2011, available at http://m.whitehouse.gov/the-press-office/2011/08/02/message-president-us-congress.

(37) For example, on December 30, 2011, debt subject to limit was $15,180 billion, just $14 billion below its statutory limit. The U.S. Treasury pays interest to Social Security and certain other trust funds in the form of Treasury securities at the end of June and December, which increases debt subject to limit.

(38) CQ Roll Call Daily Briefing, January 3, 2012.

(39) Congress could have considered a joint resolution of disapproval for this increase.

(40) Ratification requires approval by legislatures of three-fourths of the states. Article V specifies other means of amendment involving constitutional conventions as well.

(41) Treasury Secretary Timothy Geithner, letter to Senate Majority Leader Harry Reid, December 26, 2012. Identical letters were sent to other congressional leaders. Presently and in similar past circumstances, the U.S. Treasury has held debt subject to limit $25 million below the statutory limit. Large biannual interest payments to certain trust funds are due on December 31.

(42) The debt issuance suspension period was officially declared on December 31, 2012. See Treasury Secretary Timothy Geithner, letter to Senate Majority Leader Harry Reid, December 31, 2012, available at http://www.treasury.gov/ initiatives/Documents/Sec%20Geithner%20Letter%20to%20Congress%2012-31-2012.pdf.

(43) See Appendix to the December 26, 2012, letter to Majority Leader Reid: available at http://www.treasury.gov/ connect/blog/Documents/Appendix%20Extraordinary%20Measures%2012-26-2012.pdf.

(44) Treasury Secretary Timothy Geithner, letter to House Speaker John A. Boehner, January 14, 2013, available at http://www.treasury.gov/connect/blog/Documents/1-1413%20Debt%20Limit%20FINAL%20LETTER%20Boehner.pdf.

(45) CBO, Federal Debt and the Statutory Limit, November 2012, available at http://www.cbo.gov/sites/default/files/ cbofiles/attachments/43736-FederalDebtLimit-11-12-12.pdf.

(46) Speaker John Boehner, "Address on the Economy, Debt Limit, and American Jobs," May 16, 2012, prepared text available at http://www.speaker.gov/speech/full-text-speaker-boehners-address-economy-debt-limit-and-american-jobs.

(47) Jonathan Weisman, "In Reversal, House G.O.P. Agrees to Lift Debt Limit," New York Times, January 19, 2013, p. A1; Speaker John Boehner, "Speaker Boehner: No Budget, No Pay," speech excerpt, January 18, 2013, available at http://www.speaker.gov/speech/speaker-boehner-no-budget-no-pay.

(48) Ways & Means Chair David Camp, House debate, Congressional Record, vol. 159 (January 23, 2013), p. H237.

(49) H.R. 325 (P.L. 113-3) [section]3.

(50) In the Daily Treasury Statement for February 4, 2013 (available at http://fms.treas.gov/dts/index.html), Table III-A shows a net change in Government Account Series of nearly $42 billion. About $31 billion of that amount reflects replenishment of funds used for extraordinary measures, with the rest reflecting trust fund operations and other activities. Treasury Assistant Secretary for Financial Markets Matthew Rutherford, in a February 6, 2013, quarterly refunding press conference mentioned that the U.S. Treasury had replenished those funds (see webcast: http://www.treasury.gov/press-center/Video-Audio-Webcasts/Pages/Webcasts.aspx).

(51) The statutory text (5 U.S.C. [section]8348(j)(3)) governing the Civil Service Retirement and Disability Fund (CSRDF) states that

   Upon expiration of the debt issuance suspension period, the
   Secretary of the Treasury shall immediately issue to the Fund
   obligations under chapter 31 of title 31 that ... bear such
   interest rates and maturity dates as are necessary to ensure that,
   after such obligations are issued, the holdings of the Fund will
   replicate to the maximum extent practicable the obligations that
   would then be held by the Fund if the suspension of investment ...
   during such period had not occurred.


The statutory text (5 USC [section]8909(c)) governing the Postal Service Retiree Health Benefit Fund (PSRHDF) states that investments "shall be made in the same manner" as those in the CSRDF.

(52) 5 U.S.C. [section]8348(j)(5)(B).

(53) U.S. Treasury, "Jacob J. Lew Confirmed as Secretary of the Treasury," press release tg-1864; available at http://www.treasury.gov/press-center/press-releases/Pages/tg1864.aspx. Deputy Treasury Secretary Neal Wolin served as Acting Treasury Secretary after Secretary Geithner left the U.S. Treasury in January 2013 until Lew was confirmed.

(54) U.S. Treasury, Daily Treasury Statements for February 4, 2013, and May 20, 2013.

(55) Norman Carleton, "The Debt Limit and H.R. 325: The 'No Budget, No Pay Act of 2013,'" Washington Outside blog, January 24, 2013, available at http://washingtonoutside.blogspot.com/2013/01/the-debt-limit-and-hr-325-no- budgetno.html.

(56) Treasury Secretary Jacob Lew, letter to House Speaker John A. Boehner, May 20, 2013, available at http://www.treasury.gov/initiatives/Documents/Debt%20Limit%20Letter%202%20Boehner%20May%2020%202013.pdf. Secretary Lew was confirmed on February 27, 2013.

(57) Treasury Secretary Jacob Lew, letter to House Speaker John A. Boehner, August 2, 2013, available at http://www.treasury.gov/initiatives/Documents/Debt%20Limit%2020130802%20Boehner.pdf.

(58) CBO, Monthly Budget Review for July 2013, August 7, 2013, available at http://www.cbo.gov/publication/44495.

(59) Treasury Secretary Jacob Lew, letter to House Speaker John A. Boehner, September 25, 2013, available at http://www.treasury.gov/Documents/Debt%20Limit%2020130925%20Boehner.pdf.

(60) For example, Goldman Sachs predicted that the U.S. Treasury would run out of cash around November 1, 2013. See Alex Phillips, "The US Fiscal Debate: Headline Risks to the Downside, Fiscal Risks to the Upside," Goldman Sachs U.S. Daily, September 19, 2013. Also see CBO, "Federal Debt and the Statutory Limit, September 2013," September 25, 2013, available at http://www.cbo.gov/publication/44608. CBO estimated that without an increase in the debt limit, that the U.S. Treasury would exhaust its cash balances between October 22 and October 31.

(61) U.S. Department of Treasury, The Potential Macroeconomic Effect of Debt Ceiling Brinksmanship," October 3, 2013, available at http://www.treasury.gov/initiatives/Documents/ POTENTIAL%20MACROECONOMIC%20IMPACT%20OF%20DEBT%20CEILING%20BRINKMANSHIP.pdf.

(62) J.P. Morgan, "J.P. Morgan Takes Action in Light of Possible U.S. Government Default, October 10, 2013, available at http://www.jpmgloballiquidity.com/blobcontent/62/379/1323366810685_Statment_US_Web_Govt_Default_10-1013.pdf; Fidelity Investments, "Fidelity Investments Statement on Money Market Mutual Funds," October 2013, available at https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/MM-MF-Statement_Oct2013.pdf; Ken Sweet, "Short-term Funds Show Stress as Default Looms," Associated Press, October 9, 2013, available at http://money.msn.com/business-news/article.aspx?feed=AP&date=20131009&id= 16982865.

(63) Those dates are August 2, 2011 and October 17, 2013.

(64) For current Treasury securities quotes, see the Wall Street Journal quote website: http://online.wsj.com/mdc/public/ page/2_3020-treasury.html?mod=topnav_2_3010#treasuryB.

(65) U.S. Congress, House Committee on Ways and Means, The Statutory Debt Limit, 113th Cong., 1st sess., January 22, 2013; materials available at http://waysandmeans.house.gov/news/documentsingle.aspx?DocumentID=316933.

(66) U.S. Congress, House Committee on Ways and Means, Subcommittee on Oversight, Examining the Government's Ability to Continue Operations When at the Statutory Debt Limit, 113th Cong., 1st sess., April 10, 2013.

(67) U.S. Congress, Joint Economic Committee, The Economic Costs of Debt-Ceiling Brinksmanship, 113th Cong., 1st sess., September 18, 2013; materials available at http://www.jec.senate.gov/public/index.cfm?p=Hearings& ContentRecord_id=ee19780d-15a8-46bb-9cce-83acb969fc77&ContentType_id=14f995b9-dfa5-407a- 9d3556cc7152a7ed&Group_id=cb5dcfe4-afee-419f-94ee-e51eb07de989.

(68) U.S. Congress, Senate Committee on Finance, The Debt Limit, hearings, 113th Cong., 1st sess., October 10, 2013; http://www.finance.senate.gov/hearings/hearing/?id=cb3ca699-5056-a032-52fb-9f23396c3f7c.

(69) U.S. Congress, Senate Committee on Banking, Impact of a Default on Financial Stability and Economic Growth, hearings, 113th Cong., 1st sess., October 10, 2013; materials available at http://www.banking.senate.gov/public/ index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=0c33e3f3-65cd-44f1-95b9-8a433ad1554c.

(70) For details, see CRS Report RS22950, Fannie Mae and Freddie Mac in Conservatorship, by Mark Jickling.

(71) Freddie Mac at the end of 2012 stated that it "will continue to evaluate our conclusion regarding the need" to reverse its writedown of tax assets. The potential deferred tax assets for Freddie Mac are much smaller than those of Fannie Mae. See Freddie Mac (Federal Home Loan Mortgage Corporation), 10-K SEC Filing for Year Ending December 31, 2012, filed February 28, 2013.

(72) Fannie Mae, "Fannie Mae Reports Pre-Tax Income of $8.1 Billion for First Quarter 2013," press release, May 9, 2013, available at http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2013/q12013_release.pdf.

(73) Recognition of that deferred tax asset also raises policy issues unrelated to the debt limit. For an overview of related issues, see CRS Report R42760, Fannie Mae's and Freddie Mac's Financial Status: Frequently Asked Questions, by N. Eric Weiss. Also see Wrightson ICAP, "Fannie Mae's Deferred Tax Assets," Money Market Observer, April 29, 2013.

(74) U.S. Department of the Treasury, Daily Treasury Statement for June 28, 2013, Table II.

(75) Fannie Mae, "Fannie Mae Reports Net Income of $8.7 Billion and Comprehensive Income of $8.6 Billion for Third Quarter 2013", November 7, 2013; http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2013/ q32013_release.pdf. Freddie Mac, "Freddie Mac Reports Pre-Tax Income of $6.5 Billion for Third Quarter 2013," press release, November 7, 2013; http://www.freddiemac.com/investors/er/pdf/2013er-3q13_release.pdf; U.S. Treasury, Daily Treasury Statement, Table II, December 31, 2013; https://www.fms.treas.gov/fmsweb/viewDTSFiles? dir=w&fname= 13123100.pdf.

(76) The Old-Age and Survivors Insurance Trust Fund (OASI) and the Disability Insurance Trust Fund (DI) are the two Social Security trust funds.

(77) The amendment, offered by Representative Camp, added a prohibition on funding Member compensation through borrowing enabled by the measure. Treasury reporting requirements were also clarified.

(78) OMB, Statement of Administration Policy, H.R. 807 Full Faith and Credit Act, May 7, 2013, available at http://www.whitehouse.gov/sites/default/files/omb/legislative/sap/113/saphr807r_20130507.pdf; OMB, Statement of Administration Policy, H.J.Res. 59 Continuing Appropriations Resolution, 2014, September 19, 2013, available at http://www.whitehouse.gov/sites/default/files/omb/legislative/sap/113/saphjr59h_20130919.pdf.

(79) See CRS Report RS20607, Social Security: Trust Fund Investment Practices, by Dawn Nuschler. Social Security investment policy is governed by Section 201 of the Social Security Act (42 U.S.C. 401; http://www.ssa.gov/ OP_Home/ssact/title02/0201.htm).

(80) The original version of H.R. 2775, entitled the "No Subsidies Without Verification Act," passed the House on September 12, 2013, on a 235-191 vote.

(81) The debt limit provisions are included as Sec. 1002 of P.L. 113-46, entitled the "Default Prevention Act of 2013."

(82) The provision required that the Presidential certification be issued within three days of enactment.

(83) A motion to proceed on S.J.Res. 26 was rejected on October 29, 2014, by a 45-54 vote.

(84) A discussion of that measure is below.

(85) House Rules Committee, "House Amendment to Senate Amendment to H.J.Res. 59 Offered by Mr. Rogers of Kentucky," October 15, 2013, available at http://docs.house.gov/billsthisweek/20131014/BILLS-113hjres59 HAmdt2a.pdf.

(86) Treasury Secretary Jacob Lew, letter to House Speaker John A. Boehner, December 19, 2013, http://www.treasury.gov/initiatives/Documents/12-19-2013%20Debt%20Limit%20Letter%20FINAL%20Boehner.pdf.

(87) CBO, "Federal Debt and the Statutory Limit," November 20, 2013; http://www.cbo.gov/publication/44877.

(88) Alex Phillips, "Q&A on the Debt Limit," Goldman Sachs US Daily, January 23, 2014.

(89) In Figure 2, Treasury's headroom increases sharply in mid-June in large part due to corporate income tax receipts. Federal corporate estimated income tax payments are due on the 15th day of the fourth, sixth, ninth, and twelfth months of the corporation's tax year. See the IRS tax calendar at http://www.irs.gov/publications/p509/ ar02.html#en_US_2014_publink100034257.

(90) Treasury Secretary Jacob Lew, letter to House Speaker John A. Boehner, January 22, 2014, http://www.treasury.gov/ initiatives/Documents/Debt%20Limit%20to%20Congress%201-22-2014.pdf.

(91) U.S. Treasury, "Remarks of Secretary Jacob J. Lew at the Bipartisan Policy Center," February 3, 2014; http://www.treasury.gov/press-center/press-releases/Pages/jl2276.aspx; Treasury Secretary Jacob Lew, letter to House Speaker John A. Boehner, February 7, 2014, http://www.treasury.gov/initiatives/Documents/ Debt%20Limit%20Letter%20020714.pdf

(92) Wrightson ICAP, "The Debt Ceiling Debacle: See You Again in March," Money Market Observer, October 21, 2013.

(93) In 2013, individual income tax refunds totaled $66 billion in February and $58 billion in March. The IRS filing season was delayed in 2013 due to changes resulting from the fiscal cliff deal. See U.S. Treasury, Treasury Bulletin, Table FFO-2, On-Budget and Off-Budget Receipts by Source, September 2013, available at http://fms.treas.gov/ bulletin/index.html.

(94) CBO has estimated that debt subject to limit would rise by $728 billion during FY2014, compared to an estimated increase of $836 billion for FY2013. See CBO, Updated Budget Projections: Fiscal Years 2013 to 2023, May 14, 2013; available at http://www.cbo.gov/publication/44172.

(95) Certain extraordinary measures are limited by the amount of benefits that would be due during the course of the debt issuance suspension period (DISP). The Treasury Secretary has the authority to determine the length of the DISP. See 5 U.S.C. [section] 8348(b).

(96) U.S. Government Accountability Office, Analysis of2011-2012 Actions Taken and Effect of Delayed Increase on Borrowing Costs, GAO-12-701, July 2012, p. 18, available at http://www.gao.gov/assets/600/592832.pdf.

(97) More information on government sponsored enterprise payments is above.

(98) U.S. Treasury, Daily Treasury Statement, February 10, 2014, https://www.fms.treas.gov/fmsweb/viewDTSFiles?dir= w&fname= 14021000.pdf.

(99) U.S. Treasury, "Treasury Assistant Secretary for Financial Markets Matthew Rutherford February 2014 Quarterly Refunding Statement," February 5, 2014; http://www.treasury.gov/press-center/press-releases/Pages/jl2281.aspx. See also U.S. Treasury, "Treasury Suspends Sales of State and Local Government Series Securities," February 4, 2014, http://treasurydirect.gov/news/pressroom/pressroom_1401slgsoff.htm. For information on these securities, see CRS Report R41811, State and Local Government Series (SLGS) Treasury Debt: A Description, by Steven Maguire.

(100) Treasury Secretary Jacob Lew, letter to House Speaker John A. Boehner, February 10, 2014, http://www.treasury.gov/initiatives/Documents/02102014%20CSRDF%20G%20Fund%20Letter.pdf.

(101) For details on military retirement changes in the Bipartisan Budget Act and Consolidated Appropriations Act, 2014, see CRS Report RL34751, Military Retirement: Background and Recent Developments, by David F. Burrelli and Barbara Salazar Torreon.

(102) CBO, S. 540, Temporary Debt Limit Extension Act, February 11, 2014, http://www.cbo.gov/publication/45101. CBO estimated that the measure would increase mandatory spending by at least $5 billion in the decades after FY2024.

Table 1. Increases in the Debt Limit 1993-2014

                                                        Change From
                      Public Law     New Debt Limit    Previous Limit
Date                 (P.L.) Number     ($ billion)      ($ billion)

April 6, 1993         P.L. 103-12      $4,370 (a)           $225
August 10, 1993       P.L. 103-66         4,900             530
February 8, 1996     P.L. 104-103          (b)               --
March 12, 1996       P.L. 104-115          (c)               --
March 29, 1996       P.L. 104-121         5,500             600 (d)
August 5, 1997        P.L. 105-33         5,950             450
June 28, 2002        P.L. 107-199         6,400             450
May 27, 2003          P.L. 108-24         7,384             984
November 19, 2004    P.L. 108-415         8,184             800
March 20, 2006       P.L. 109-182         8,965             781
September 29, 2007    P.L. 110-91         9,815             850
July 30, 2008        P.L. 110-289        10,615             800
October 3, 2008      P.L. 110-343        11,315             700
February 17, 2009     P.L. 111-5         12,104             789
December 28, 2009    P.L. 111-123        12,394             290
February 12, 2010    P.L. 111-139        14,294            1,900
August 2, 2011        P.L. 112-25      16,394 (e)        2,100 (e)
February 4, 2013      P.L. 113-3           (f)              (f)
October 16, 2013      P.L. 113-46          (g)              (g)
February 12, 2014       S. 540;          Error!            Error!
                        pending         Reference        Reference
                     presidential      source not        source not
                       signature         found.            found.

Sources: CRS, compiled using the Legislative Information System,
available at http://www.congress.gov; OMB.

(a.) Increased the debt limit temporarily through September 30, 1993.

(b.) Temporarily exempted from limit obligations in an amount equal
to the monthly insurance benefits payable under Title II of the
Social Security Act in March 1996, the exemption to expire on the
earlier of an increase in the limit or March 15, 1996.

(c.) Temporarily exempted from limit (a) obligations in an amount
equal to the monthly insurance benefits payable under Title II of
the Social Security Act in March 1996 and (b) certain obligations
issued to trust funds and other Federal Government accounts, both
exemptions to expire on the earlier of an increase in the limit or
March 30, 1996.

(d.) Difference from debt limit set on August 10, 1993.

(e.) See discussion in section "Debt Limit Increases Under the
BCA." BCA-related increases, divided into three steps ($400 billion
on August 2, 2011; $500 billion on September 22, 2011; and $1,200
billion on January 28, 2012) totaled $2,100 billion.

(f.) Debt limit suspended until May 19, 2013. Debt limit set at
$16,699 billion after suspension ended. See discussion in text
below.

(g.) Debt limit suspension ends February 7, 2014. Suspension
required presidential certification. Debt limit set to $17,212
billion after suspension ended. See discussion in text below.

(h.) Debt limit suspension ends March 15, 2014. Suspension does not
require presidential certification. Pending presidential signature.


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