Debt Limit Crunch Now Not Expected Until October or November

By Jonathan Nicholson

As lawmakers work to keep the government funded past April 28, it increasingly appears they will get an extension on a bigger to-do item later: making sure the Treasury Department avoids a debt default.

Debt watchers have been moving their projections on when the federal debt limit, which is set by Congress, must be raised or again suspended to later in the year, with sometime in October or November now becoming the consensus.

The Treasury Department has yet to say officially how long it expects its “extraordinary measures"— shuffling debt between federal accounts to keep from piercing the debt ceiling—to last, but a later deadline probably means Congress won’t turn its attention to the matter seriously until September at the earliest.

October ‘Reasonable’

“I feel October is a reasonable time frame,” said Nancy Vanden Houten, senior research analyst with Stone & McCarthy Research Associates in Princeton, N.J. She said “conceivably November” was also a possibility.

Lou Crandall, chief economist with analytical firm Wrightson ICAP, said his window for when Treasury will run out of borrowing room runs from Oct. 2 to Nov. 15.

Those forecasts line up with an earlier projection from the Washington, D.C.-based Bipartisan Policy Center (BPC), which had also projected an October or November “drop dead” date.

When the BPC made its estimate in March, it was the most bullish on how much extra time the Treasury’s accounting maneuvers would give it to borrow. Since that projection, though, sentiment has moved. “I think people were more in the summer camp” previously, Vanden Houten said.

Oct. 2, the first business day of fiscal year 2018 and a date on which payments to some federal trust funds are due, remains a big question mark at this point. “I can envision them not getting past it and I can envision them getting past it,” Vanden Houten said.

May 3 Guidance?

The timing could easily change again, as it depends on a variety of factors, including how quickly Treasury’s “extraordinary measures” are drawn down, the pace of federal spending and lumpy Treasury cash inflows, such as from annual and quarterly tax deadlines and other revenue sources.

The biggest of those deadlines—the mid-April individual tax payment deadline—just passed and the initial readings on it were not encouraging for the Treasury, according to Crandall and Vanden Houten.

“Revenues are getting off to a sluggish start,” Crandall said in an email. He said he expected personal income tax payments to be off from last year’s levels by “low single digits” percentage-wise and corporate receipts looked to be somewhere between flat and down slightly. “That’s not out of line with earlier trends, but not much better either,” he said.

According to Treasury data, April individual tax payments totaled $170.4 billion through April 24, down by 5.5 percent compared to the same date in 2016.

The Treasury Department may give more guidance on what it sees in the April tax receipts, and whether they have a large impact on its debt limit projections, in early May. Treasury debt managers are set to issue their quarter policy statement May 3 and hold a brief press conference afterwards.

‘Plenty of Time’

Treasury Secretary Steven Mnuchin, speaking at an April 26 event hosted by The HIll, said “I’m comfortable into the summer that we’re fine.”

He said he hoped to avoid the last-minute negotiations that often marked debt talks between congressional Republicans and former President Barack Obama. “We’re not going to do one of these wait ‘til the last minute, either. We’ll get the debt limit done in plenty of time so there’s no issues for the markets,” he said.

The Trump administration is evaluating whether extending the government’s borrowing capacity would probably be in a bill that would require only 51 votes in the Senate or one that would need 60 votes to bypass a Democratic filibuster, Mick Mulvaney, the director of the Office of Management and Budget, said at an April 20 event hosted by the Institute of International Finance.

“Those are two very different scenarios in the Senate, I can assure you,” he said.

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