Last week, the Government Accountability Office (GAO) released a new report to Congress on the debt limit, showing that the failure to raise the debt limit in a timely fashion in 2013 had costs for the federal government. The report also contains proposals for reforming the debt limit. The Better Budget Process Initiative (BBPI) released a paper this spring with proposals for debt limit reform that mirror and answer some of GAO's options and concerns.
The debt limit technically returned in March of this year, though “extraordinary measures” that the Treasury can take will delay the ultimate deadline until late fall. As possibly the most disruptive fiscal speed bump facing the country, it’s important to look into ways that the debt limit can be used to bring attention to our unsustainable debt path while limiting unproductive brinksmanship. The GAO report found that the delay in passing an increase in the debt ceiling during the 2013 government shutdown very much concerned investors. These concerns translated into some financial firms being unwilling to hold Treasuries with expirations immediately after the end of the Treasury department’s ability to continue “extraordinary measures” (we noted an increase in the one-month Treasury yield at the time). GAO found that this increased borrowing costs for the government by between $38 million and just over $70 million. GAO’s communications with investors indicate those investors are prepared to take similar measures if policymakers drag their feet again this fall.
In addition to the analysis on the increased costs, GAO provided recommendations of policy changes to reduce the damage from a future debt limit debate. The proposals include: linking action on the debt limit to the budget resolution, providing the administration with the authority to increase the debt limit subject to congressional disapproval, and delegating broad authority to the administration to borrow as necessary. In March, our BBPI paper “Improving The Debt Limit” put forward several detailed proposals that were consistent with broad recommendations in the GAO report or were variations on the GAO recommendations.
Congress sped through this year's second and third "Fiscal Speed Bumps" in March, ignoring the return of the statutory debt limit (though the hard deadline for the debt limit is not until this fall, due to the Treasury Department's "extraordinary measures") and hurrying through a fiscally irresponsible, though permanent, solution to the expiration of the Medicare "doc fix." We've updated our Speed Bumps graphic, below, showing lawmakers barreling full speed to the end of May when the Highway Trust Fund will run out of money.
This week, the House and Senate will announce their conferenced budget resolution, which outlines their blueprint for Fiscal Year 2016. The passage of the concurrent budget resolution signals the start of the appropriations process, which must be completed before an October 1 deadline. That deadline also coincides with the expiration of the Ryan-Murray budget deal and the return of sequestration discretionary spending levels. As we wrote last week, the House jumped the gun and has already started work on several appropriations bills in advance of the final resolution.
The federal government will reach its second Fiscal Speed Bump today, as the debt ceiling will be reinstated after having been suspended since last February. The Treasury Department will be able to push back the actual day of reckoning until the fall with "extraordinary measures," but lawmakers will have to lift it later this year to avoid a default on the debt. At times, raising the debt ceiling has involved unnecessary brinkmanship, but it has often been used as a catalyst to make important fiscal reforms. To further the latter and minimize the former, the Better Budget Process Initiative has proposed ten options to change the debt ceiling to make it a more effective tool for fiscal responsibility while improving financial stability in a new paper entitled "Improving the Debt Limit".
The paper divides the changes into four broad categories: linking debt limit changes to achieving fiscal targets, incorporating the debt limit into Congress's decision making, applying the debt limit to more meaningful measures, and replacing the debt limit with a limit on future obligations. The ten options are below:
Link changes in the debt limit to achieving responsible fiscal targets
1) Presidential authority to increase the debt limit if fiscal targets are met
2) Presidential authority to increase the debt limit if accompanied by a plan to put debt on a declining path as a share of GDP
3) Suspend the debt limit automatically if fiscal targets are met
Congress approached and addressed the first impending "Fiscal Speed Bump" this week, cleanly funding the Department of Homeland Security (DHS) with appropriations through the rest of the fiscal year. The updated set of speed bumps now have two more approaching in March - the expiration of the "doc fix" for the Medicare Sustainable Growth Rate (SGR) and the reinstatement of the debt ceiling (though the Treasury Department's "extraordinary measures" will move the actual date for action to this fall). We wrote this week on both the prospects for the doc fix can getting kicked down the road until later this year or next and the hard deadline for the debt ceiling in the fall.
In the coming weeks, lawmakers will release their budget resolutions outlining their blueprints for Fiscal Year 2016. Their passage starts the appropriations process, which requires bills to be passed before the October 1 deadline, which coincides with the expiration of the Ryan-Murray budget deal.
Although the 114th Congress is just getting settled, it will have to move quickly to address a series of deadlines with serious policy and fiscal consequences. These "Fiscal Speed Bumps" present serious challenges and risks but also opportunities for policymakers, as we explain in a new paper.
The paper lays out the seven speed bumps -- six this year and one in 2016 -- that policymakers will have to (or should) address this year, what policymakers have usually done in the past, and the consequences of inaction for each. These speed bumps are:
- Expiration of the CR funding Homeland Security (February 27, 2015)
- Reinstatement of the debt ceiling (March 16, 2015/Fall 2015)
- Expiration of the “doc fix” and return of the SGR (March 31, 2015)
- Expiration of the highway bill, insolvency of the Highway Trust Fund (May 31, 2015)
- Expiration of 2015 appropriations, return of sequestration (October 1, 2015)
- Deadline to renew tax extenders retroactively (December 31, 2015)
- Insolvency of the Social Security Disability Insurance Trust Fund (late 2016)
One of the wonkier fiscal debates that arises from time to time concerns the accounting method used to measure the size of the budget deficit. This week, the U.S. Government Accountability Office (GAO) published an online primer that explains the different ways to measure the deficit and what these measures say about the government’s fiscal health.
With the debt ceiling having been reinstated last Friday, lawmakers are scrambling to come up with legislation to lift or suspend it again before extraordinary measures likely run out by the end of the month. Originally, House Republicans had planned on attaching a repeal of the military retirement cost-of-living adjustment reduction for people who joined the service prior to 2014 to a debt ceiling suspension through March 15 of next year.
In order to avoid bumping up against the statutory debt ceiling, the Department of the Treasury has begun undertaking a number of so-called "extraordinary measures." The current debt limit is $17.211 trillion.
Yesterday, we updated our Q&A: Everything You Needed To Know About the Debt Ceiling to reflect the newest date for the debt ceiling, which will be reinstated after February 7. The debt ceiling was suspended in mid-October, following a partial government shutdown, and will be reinstated on Friday. This suspension will result in a de facto $600 billion increase, putting the new debt ceiling at approximately $17.3 trillion.