Thursday, January 24, 2013

The Debt Limit and H.R. 325: The “No Budget, No Pay Act of 2013”

Yesterday, the House passed H.R. 325, the “No Budget, No Pay Act of 2013,” which would suspend the debt limit through May 18. It also attempts to force both the House and the Senate to pass a budget by threatening to put the pay of the members of the chamber not passing a budget by April 15 into an escrow account until that chamber passes a budget or the last day of the current Congress, whichever comes sooner. 
The Treasury would be able to resume normal debt issuance to keep the government funded and would unwind the current “extraordinary measures” it has taken if H.R. 325 is enacted into law as currently written. On May 19, if Congress has not enacted additional debt limit legislation, the debt limit would be “increased to the extent that--

“(1) the face amount of obligations issued under chapter 31 of such title and the face amount of obligations whose principal and interest are guaranteed by the United States Government (except guaranteed obligations held by the Secretary of the Treasury) outstanding on May 19, 2013, exceeds
“(2) the face amount of such obligations outstanding on the date of the enactment of this Act.

“An obligation shall not be taken into account under paragraph (1) unless the issuance of such obligation was necessary to fund a commitment incurred by the Federal Government that required payment before May 19, 2013.”
Staff at the Bipartisan Policy Center (“BPC”), who have posted a useful explanation and analysis of H.R. 325, interpret this to mean that the increase in the debt would not include the securities issued to government trust funds when the extraordinary measures are unwound. They do not provide an explanation for this interpretation, but presumably the reason is that these securities, in their reading, would not be issued “to fund a commitment incurred by the Federal Government that required payment before May 19, 2013.” This seems to be a reasonable interpretation of the language.

Therefore, BPC staff reasons that the outstanding debt on May 19 would be higher than the new debt limit on that date by the amount of the extraordinary measures that are unwound by new security issuances once H.R. 325 is enacted into law. They further state that “Treasury will immediately either need to use some Extraordinary Measures to stay under the new limit or use cash on hand to redeem some outstanding debt.”
With regard to that last point, I am not sure that it is correct. The debt that Treasury issued during the suspension period would have been lawfully issued, and I believe that Treasury would not need to do anything immediately to reduce the amount of debt outstanding. However, Treasury could not issue new debt or rollover existing debt, because that would be debt in excess of the new limit. The usefulness of the extraordinary measures would be greatly reduced, though, because, these measures would provide room to borrow more funds only to the extent that they exceeded the amount needed to reduce the outstanding debt to the new debt limit.

Also, BPC states that the H.R. 325 would prevent the Treasury “from issuing large amounts of debt to the public in the days before May 19 to stockpile cash to pay bills that are due after May 19.” Donald Marron also comes to that conclusion. I am not sure, though, that this is strictly true, since there is no direct prohibition in H.R. 325 to doing this. But any amounts borrowed in excess of what was needed to fund current obligations would not increase the debt limit. On May 19, therefore, If Treasury followed such a strategy, the amount of the debt subject to limit would be greatly in excess of the new debt limit, which would mean that much of this cash would have to be used to redeem Treasury securities as they mature (there are T-bills maturing every week). In other words, there would not be much use to borrowing more than is needed.
This, however, points to another issue, the determination of the new debt limit on May 19.  For example, Treasury’s cash balances fluctuate day to day. How would an increase in the cash balance be treated? For example, Treasury might have to borrow to pay obligations coming due in early May, but its cash balance might increase by May 19 because of tax payments that have been credited to Treasury’s account. It is not clear how such issues would be resolved and who would have the responsibility to establish the new debt limit number.

But the ambiguities in the current language of H.R. 325 will probably not need to be resolved since the outcome of the upcoming sequester and Continuing Resolution battles will likely also involve a longer-term solution to the debt limit issue. Also, as many have noted, there is a Constitutional issue involving the Congressional pay issue and the 27th Amendment. My guess is that, if H.R. 325 is enacted as written, both the House and the Senate will pass separate budgets by April 15 and that the pay provisions will not be tested in court. Since the Senate and the House are unlikely to agree on a budget, this would seem to be largely symbolic.  

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