US Treasury Takes Step to Avoid Hitting Debt Limit


The federal government says it will temporarily suspend sales of U.S. Treasury securities to state and local governments, starting at noon on Friday, its first step to avoid breaching the nation’s borrowing limit this year.

The move, announced Tuesday by Treasury officials, will be followed by other bookkeeping maneuvers, to keep the government functioning until Congress decides to raise the borrowing limit.

The government temporarily suspended the borrowing limit last October, as part of the agreement to end the government shutdown. But that halt ends this Friday. Treasury can keep the government operating for a few weeks, but Treasury Secretary Jacob Lew has warned that he has less maneuvering room than he did in last year’s battle over the debt limit.

The suspension of sales of Treasury securities to state and local governments will affect their ability to manage their investment holdings. The special securities, which are not available to the general public, allow state and local governments to invest the proceeds of tax-exempt bonds.

Lew, in a speech Monday, urged Congress to move quickly to raise the borrowing limit, saying that his maneuvering room will most likely run out by Feb. 28. One reason for the shorter time frame this time is that it’s February, a month when the government has heavy cash needs to pay tax refunds.

In past debt standoffs, Republicans, who control the House, have insisted on spending reductions as the price for increasing the debt limit. However, they may be prepared to take a less confrontational approach this time around.

House Speaker John Boehner, R-Ohio, said Tuesday that Republicans have “a lot of opinions about how to deal with the debt limit. No decision’s been made” on how to proceed.

He said, “The goal here is to increase the debt ceiling. Nobody wants to default on our debt. But while we’re doing this, we ought to do something about keeping jobs in the economy, about the drivers of our debt.”

After midnight Friday, the borrowing ceiling will be reinstated, at the level of debt the government has run up since the debt ceiling was suspended in October. On Monday, the debt stood at $17.2 trillion.

Lew can employ various measures used in the past, to free up room for the government to keep borrowing for a limited time, without hitting the limit.

But once those measures are exhausted, the government will not have the money to meet its obligations, including paying interest on the debt it has on its books. That would put the government in default for the first time in its history.