Extraordinary Measures
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On a number of recent occasions, the U.S. government has bumped up against its debt limit. During these times, additional debt could not be issued using normal operations. The Treasury Department used extraordinary measures that generate additional cash to meet financial obligations while still complying with the debt limit.
What Are They?
Existing statutes allow Treasury to change the normal operations of certain government accounts when the debt limit is reached. While there are a handful of extraordinary measures, most of the Treasury’s added borrowing capacity derives from three measures that allow it to reduce certain types of government debt. Reducing this debt allows Treasury to continue to pay the government’s bills in full and on schedule, but operating under extraordinary measures costs time and effort on behalf of Treasury employees to implement.
The Big Three
1. Thrift Savings Plan Government Securities Investment Fund (G FUND)
The Thrift Savings Plan for federal employees includes an option that is invested in Treasury debt. Known as the G Fund, it is invested in special non-marketable securities that mature every day. When operating at the debt limit, Treasury can choose not to fully invest this fund from day to day.
Example. Even if federal employees have invested $100 billion in the fund, Treasury could choose to only issue $90 billion in securities to the fund, thereby creating $10 billion of room under the debt limit, which could then be used to auction more debt to the public, raising cash to pay government bills. Once the debt limit is increased or suspended, the G Fund would be restored to the full $100 billion, plus any interest that would otherwise have been earned under full investment of the fund.
2. Exchange Stabilization Fund (ESF)
This measure works similarly to the G Fund. The ESF is an account that Treasury uses for certain currency-related operations. It is composed of the same securities as the G Fund (one-day certificates). The ESF is much smaller than the G Fund and is often only deployed as an extraordinary measure after the G Fund has been fully depleted of securities.
3. Civil Service Retirement and Disability Fund (CSRDF)
This measure, which utilizes the main pension fund for federal employees, has several features. Most important are: 1) the ability to avoid adding to the fund’s intragovernmental debt by waiting to credit interest on the fund’s securities and 2) delaying rollovers of its maturing securities until after the debt limit is increased. This measure also applies to the smaller Postal Service Retiree Health Benefits Fund (PSRHBF), which is a separate fund that pays for healthcare expenses of retired Postal Service employees.
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Step 1: When certain non-marketable debt is reduced using extraordinary measures, it creates room under the debt limit.
Step 2: This room can be used to sell additional debt to the public, which raises cash. That cash is then used to pay bills.
Step 3: After the debt limit is increased, the extraordinary measures are legally required to be unwound. This means that the non-marketable debt reduced through extraordinary measures has to be restored.
Step 1: When certain non-marketable debt is reduced using extraordinary measures, it creates room under the debt limit.
Step 2: This room can be used to sell additional debt to the public, which raises cash. That cash is then used to pay bills.
Step 3: After the debt limit is increased, the extraordinary measures are legally required to be unwound. This means that the non-marketable debt reduced through extraordinary measures has to be restored.
There Are Limits
Extraordinary measures are not unlimited. For example, once the G Fund is down to zero (because it has been completely disinvested), the measure is no longer useful for extending Treasury’s borrowing capacity. At some point, if the debt limit is not increased or suspended, Treasury will run out of extraordinary measures and will only have cash on-hand plus daily revenue collections to make payments. Because the nation runs a deficit, eventually there will not be enough cash on-hand to make all scheduled payments in full and on time.
How Long They Last
The length of time that extraordinary measures last depends both on how many are available—which, among other factors, varies by time of year—and on the size of the government’s deficit. For instance, in March 2017, around $388 billion of measures were available when the debt limit was reinstated, and April tax receipts helped push the X Date about six months away to the fall. In contrast, when the debt limit was reinstated in December 2017, only $270 billion in extraordinary measures were available. Combined with the fact that the federal government tends to run a large deficit in February, a March X Date was projected, only three months away.
All of these measures are authorized by law and have conditions on when and how they are used, along with how they must be unwound after the debt limit is increased or suspended. Only Congress has the authority to pass legislation to add new measures or change existing measures.
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