Federal employees, whether they know it or not, are playing a role in maintaining the federal government’s financial standing. Perhaps readers should congratulate themselves on their role in maintaining the country’s credit standing.
Extraordinary Measures and the G Fund
The debt ceiling for the federal government was reached in March 2017 as the federal government continues to spend much more money than it receives. The debt limit has not been raised by Congress.
In the meantime, the Department of the Treasury has been using “extraordinary measures” in order for the Federal government to pay its bills.
The US Treasury is expected to run out of extraordinary measures (raiding the federal pension funds) by early September. At that point, the government will be relying entirely on tax receipts for new funds.
Even if tax receipts remain healthy, the Federal Government had estimated that it will be out of money by early October. That estimate was recently changed. Treasury Secretary Steven Mnuchin says Congress should vote to raise the debt limit before leaving Washington for its August recess. The Trump administration is warning that tax receipts are coming in slower than expected and the earlier prediction of the debt limit needing to be raised by October or November are no longer valid.
What is the Debt Limit?
The debt limit is the total amount the Federal Government is authorized to borrow to meet its legal obligations. These obligations include Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.
The debt limit does not authorize new spending commitments. It only allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.
The total national debt is now almost $20 trillion. Currently, the debt limit is about $19.808 trillion.
Extraordinary Measures Impacting Federal Employees and Retirees
Treasury secretaries in both Republican and Democratic administrations have used their authority to implement extraordinary measures in order to prevent the United States from defaulting on its obligations as Congress deliberates on increasing the statutory debt limit.
The extraordinary measures available to Treasury that are of most interest to FedSmith readers include:
- Determining that a “debt issuance suspension period” exists, which permits the redemption of existing, and the suspension of new, investments of the Civil Service Retirement and Disability Fund and the Postal Service Retirees Health Benefit Fund; and
- Suspending reinvestment of the Government Securities Investment Fund (the G Fund in the TSP).
These actions create some financial breathing room and allow the Federal Government to remain under the current debt limit.
These measures are limited. They only postpone the need for an increase in the statutory debt limit. On average, the public debt of the United States is new increasing by approximately $100 billion per month.
$225 Billion From the G Fund and Avoiding the Federal Debt Limit
Once the debt limit has been reached, Treasury may also suspend the daily reinvestment of the Treasury securities held by the Government Securities Investment Fund (G Fund) of the Thrift Savings Plan.
The G Fund is a money market defined-contribution retirement fund for Federal employees. The fund invests in special-issue Treasury securities. These securities count against the debt limit. The entire balance matures daily and the government normally re-invests this money. Congress has granted the Treasury Department authority to suspend the reinvestment of all or part of the balance of the G Fund when the Secretary determines the fund cannot be fully invested without exceeding the debt limit.
This accounting technique provides the federal government with room the continue paying bills without going over the debt limit. The G Fund balance is approximately $156 billion so using this “extraordinary measure” now provides about $156 billion in financial sustenance for Uncle Sam. When the extraordinary measures were being implemented in March, the G fund balance to be used was about $225 billion.
During the investment suspension, payments from the G Fund continue as long as the Federal government has not yet exhausted all of its extraordinary measures. Once the extraordinary measures are exhausted, the Government is limited in its ability to make payments. By law, the G Fund will be made whole once the debt limit is increased. The Treasury assures Federal retirees and employees that they will not be affected by these events.
After the debt limit impasse has ended, the G Fund will be made whole. In the long run, investors in the Thrift Savings Plan who invest their money in the G Fund do not lose money. That is how the system has worked in the past, and it has occurred a number of times. In the past 22 years, Treasury used the G fund in this way in 1995-96, 2002, 2003, 2004, 2006, 2011, 2012, 2013, 2014, and 2015. We can now add 2017 to this list.
This is a statement that the TSP has issued in the past regarding the G fund and the debt suspension period.
The make-whole provision means that TSP participants who have invested in the G Fund will not lose anything. The G Fund account balances would be exactly the same from day to day as if they were invested in Treasury securities. Furthermore, disbursements of TSP loans and withdrawals would not be delayed, nor would the amounts of those payments be reduced.
The Civil Service Retirement and Disability Fund (CSRDF) and the Debt Limit
The CSRDF provides defined benefits to retired and disabled Federal employees covered by the Civil Service Retirement System.
The CSRDF invests in special-issue Treasury securities. These securities count against the debt limit.
The Treasury Department is authorized to suspend investing money received by the CSRDF. This authority can be used when the Secretary of the Treasury determines that additional investments cannot be made without exceeding the debt limit. Also, the Treasury can redeem existing investments held by the CSRDF when the Secretary of the Treasury during a “debt issuance suspension period.”
These actions provide another $26 billion in financial headroom under the existing debt limit. Currently, the Secretary of the Treasury has determined a debt issuance suspension period started on March 16, 2017, and ends on July 28, 2017.
What About the Postal Service Retiree Health Benefit Fund (PSRHBF)?
The Postal Accountability and Enhancement Act of 2006 requires investments in the PSRHBF be made in the same manner as investments for the CSRDF. In other words, the two systems will be treated in the same way.
Will Retirement Pension Payments Be Suspended?
The CSRDF will be paid back after the debt limit has been increased. According to the Treasury Department, benefits for retired and disabled Federal employees will continue to be paid. The Treasury also notes that after the Federal Government has exhausted the extraordinary measures “to preserve lawful borrowing authority without exceeding the debt limit, however, the U.S. Government will be limited in its ability to make payments across the government.”
What Happens When the Debt Issuance Suspension Period Expires?
As noted above, a debt issuance suspension period started on March 16, 2017, and ends on July 28, 2017. What happens if the debt limit is not increased by that date?
While the Treasury Secretary has declared the dates for a debt issuance suspension period ending on July 28, 2017, this does not preclude him from making a new determination. As circumstances change, the debt issuance suspension period can be extended, presumably based on the circumstances that exist at that time.
Will Congress Approve an Increase in the Debt Limit?
Congress has always approved an increase in the debt limit and little doubt they will do so this time. When and how it gets to that point remains an open question.
The Congressional recess period is from July 29 – August 4th. Treasury Secretary Steven Mnuchin says failure to increase the debt ceiling would “obviously create significant market disruption” and that “I can’t imagine that we would get to a point where we don’t raise it.”
The political atmosphere in the country today is heated and intense. Whether political disputes will derail raising the debt limit remains to be seen. In all likelihood, some agreement will be reached before the government runs out of money necessary to pay its bills.