Debt Limit Update: No Change to BPC X Date Projection

Two weeks ago, the Bipartisan Policy Center released our projected range for the debt limit X Date – the day upon which the U.S. government would no longer be able to meet all of its financial obligations in full and on time – if policymakers do not take action. We have closely monitored actual government financial data over the past few weeks, and we continue to believe that the X Date is most likely to occur between October 18 and November 5.

This morning, Treasury Secretary Jack Lew sent a letter to Congress, the first such update since one month ago when Treasury had projected that extraordinary measures would be exhausted in mid-October, leaving roughly $50 billion of cash on hand at that point. The new letter gives a more precise date for the exhaustion of extraordinary measures – October 17 – and now projects that only $30 billion of cash will remain on that date. This assertion is consistent with BPC’s analysis of recent financial data.

While quarterly tax revenue for mid-September was modestly below expectations, the results do not warrant a change in our projection at this time. Moreover, there are a few reasons why it is premature to narrow the projected range. First, because the projected daily deficits during our X Date range are likely to be small, there is no single day or small period of days around which we can state confidently that the X Date will occur. In other words, there is no day in our range for which we project a large “cliff” of obligations that would make such a day an especially likely candidate for the X Date.

Additionally, two notable uncertainties lie ahead in the new fiscal year:

1. On October 1 – the first day of Fiscal Year (FY) 2014 – Treasury is required to make large credits to military retirement benefit funds. These transactions will substantially increase intragovernmental debt (which counts against the debt limit), and their exact amounts are not known at this time. In recent years, the accruals have amounted to roughly $75 billion; however, each year, the Department of Defense actuaries have an opportunity to adjust the methodology for calculating the amount. Since the accrual for October 1 has not been publicly announced yet, there is a possibility that it could deviate from its size in prior years.
2. The Highway Trust Fund, which provides funding for many of the federal government’s transportation spending programs, has been authorized to receive a transfer of $12.6 billion for FY 2014. This transfer, which could be made at any time after September 30, will increase intragovernmental debt. Although the transfer for FY 2013 was made last November, the highway account of the Trust Fund is running quite low – at the end of August the highway account had a balance of just under $3 billion – and may be exhausted if none of these FY 2014 funds are credited prior to November.

As always, our X Date range is subject to general uncertainty regarding federal government cash flows, particularly revenues. If policymakers wish to be certain that they address the debt limit before a payment is missed by Treasury, action would need to be taken days in advance of the October 18 start of BPC’s projected X Date window.

BPC will continue to monitor actual financial data as it becomes available. We anticipate updating our X Date projection range in early October.