Treasury Secretary Janet L. Yellen issued a warning to Congress on Friday that the department may not be able to continue paying the nation’s bills past September without action from lawmakers.
Yellen wrote to congressional leaders that once the current debt limit suspension expires at the end of July, the department will begin using so-called extraordinary measures, or budget maneuvering, to “prevent the United States from defaulting on its obligations.”
How long those steps would avoid a default is uncertain, and Yellen urged congressional leaders to act “as soon as possible” to avoid an event similar to or worse than the 2011 debt limit standoff when the country experienced the only credit rating downgrade in its history.
“The period of time that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months into the future, exacerbated by the heightened uncertainty in payments and receipts related to the economic impact of the pandemic,” Yellen wrote.
Yellen wrote that Treasury will begin taking extraordinary measures on Aug. 1, starting with suspending sales of special state and local government securities, to remain technically within the borrowing cap, which on that day will reset to roughly $28.5 trillion. The agency's cash balance, which sat at $616 billion as of Wednesday, is expected to drop to $450 billion by the end of the month.
The Congressional Budget Office earlier this week said Treasury probably can make it until October or November before lawmakers would have to act by either raising or suspending the debt ceiling again. But Yellen wrote that on Oct. 1, Treasury is expected to burn through as much as $150 billion in available cash and extraordinary measures, including large payments for military retirement and health care benefits.
Given uncertainty over cash flow, Yellen wrote that "there are scenarios in which cash and extraordinary measures could be exhausted soon after Congress returns from recess." The Senate isn't scheduled to return from its summer break until Sept. 13, and the House is slated to follow one week later on Sept. 20.
Congressional leaders haven't yet begun serious negotiations about how to address the debt limit ahead of a potential default.
Numerous Republicans this week said they either won’t help Democrats to suspend the debt limit again or have issued lists of unrealistic demands in exchange for their votes.
The 15 Republicans on the House Budget Committee wrote a letter Wednesday with nine changes to federal fiscal policy that they want considered as part of the debt limit debate.
One of their suggestions would be another decadelong series of spending caps on discretionary spending, similar to the 2011 deficit reduction law that the federal government is just emerging from.
If Democrats don’t want to negotiate with Republicans they could raise the debt limit through the reconciliation process, though they’d likely have to set a specific dollar number of allowable debt instead of setting a date through which to suspend the debt limit.
The reconciliation process would allow them to get around the Senate’s 60-vote legislative filibuster, although it would also mean keeping nearly all congressional Democrats in support of the maneuver.
Yellen, however, encouraged congressional leaders to work on a bipartisan basis to address the debt limit.
“In recent years Congress has addressed the debt limit through regular order, with broad bipartisan support,” she wrote. “I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible.”