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By Jonathan Nicholson
May 15 — The “drop-dead” date for boosting the Treasury Department's borrowing capacity or risking a default on U.S. federal debt looks set to slip again, into December or possibly even into the early part of the 2016 presidential election year.
The Treasury Department declined to provide an update on the outlook at its quarterly debt management press conference May 6 but record April federal receipts and, according to one analyst, Treasury's own borrowing projections increase the chances the drop-dead date by which the debt ceiling must again be dealt with will slide to December or beyond.
“Point estimate is second week of December, but risk is that it could stretch out until February if the Treasury is right,” said Lou Crandall, chief economist with analytical firm Wrightson ICAP, in an e-mail to Bloomberg BNA May 15.
Previously, Crandall had projected late November as the most likely target date, but with a window that went from early October to Dec. 31. He said he moved the most likely date for exhaustion of the debt limit, and the back end of the window, in response to Treasury's new, more optimistic estimates of borrowing in the next five-month provided as part of its quarterly debt management “refunding” briefings in the May 4 week.
A later deadline for resolving the debt limit could also affect other issues. If a transportation program reauthorization or impasse over annual appropriations is not resolved by the end of the year, they could get wrapped up into an end-of-year debt limit debate. And the closer the debt limit deadline edges to 2016, the more likely it will get wrapped up in presidential election politics.
“The later you get, is sort of a two-edged sword, you could say,” said House Democratic Whip Steny Hoyer (Md.) in his weekly meeting with reporters May 12. “It is hard to do it early because you are not compelled to do it. It is a tough vote for some. On the other hand, the later you do it, the more angst you create, the more uncertainty you create, and the more disrespect the American people have for our willingness to make decisions that are inevitable to make, but which politically some don't want to make.”
Since March, the Treasury Department's debt managers have been operating under “extraordinary measures,” a series of well-known and regularly used accounting moves intended to keep debt just below the $18.113 trillion debt ceiling. The borrowing capacity provided by those measures, as well as the regular ebb and flow of Treasury's tax receipts and outlays, determine how long Treasury can keep borrowing once it bumps up against the limit.
In March, the nonpartisan Congressional Budget Office pushed its projection of when Treasury would be out of borrowing room and unable to meet its obligations to as late as October or November from its previous estimate of September or October. Private-sector forecasters had also made similar estimates.
But April, and its crucial individual income tax and quarterly estimated corporate tax payment deadlines, provided a new data point for debt limit watchers: tax season receipts. And the verdict, while early, seems to be that revenues were healthy, which in turn would mean Treasury will exhaust the “extraordinary measures” at a slower pace.
The Treasury said May 12 revenues totaled $471.8 billion, a nominal record for any month and up from $414.2 billion in April 2014. Individual income tax receipts were $929.6 billion for the fiscal year-to-date in April, up 12.9 percent compared to 2014. Individual income taxes are the government's biggest single source of revenues and the robust April numbers could bode well for quarterly income tax payments in June and September as well.
The Treasury also said May 4 it expected it would need to borrow $66 billion in the July-September quarter, in stark contrast to the $205 billion borrowed in the same quarter of 2014.
Crandall wrote in a memo to clients May 11 that Treasury's cash flow projections were much more optimistic than his, to the tune of about $80 billion over the next five months.
“Our general practice in cases where our initial estimates differ sharply from the Treasury’s is to shade our forecasts in the Treasury’s direction on the assumption that the final outcome will fall somewhere in between the two sets of projections. The adjustments we have already made are enough to push our projection for the debt ceiling drop-dead date from late November to sometime in December,” Crandall wrote.
“If the Treasury’s latest projections turn out to be correct, it is possible that our point estimate for the crunch date would spill over to early 2016,” Crandall wrote.
Treasury has declined to give its own update on debt limit timing at the quarterly debt management press conference May 6, even though Treasury Secretary Jacob J. Lew had previously cited uncertainty about tax receipts as a reason he could not offer lawmakers a debt limit forecast Feb. 3.
“There are a number of forecast factors that make it difficult to provide a precise estimate as to how long extraordinary measures will last. We will provide greater clarity at a later date regarding how long extraordinary measures will allow Treasury to continue to borrow,” said Seth Carpenter, acting assistant secretary for financial markets, May 6.
Treasury also introduced May 6 what could be something of a wildcard into debt limit drop-dead date forecasts: a higher minimum cash balance, the amount of cash Treasury intends to have on hand on a regular basis to guard against unexpected expenses.
In the past that amount has often been, by federal budget standards, relatively low. In fact, the Treasury had managed the cash balance down to around $33 billion earlier in the year to comply with the law that temporarily suspended the debt ceiling through March. But on May 6 Treasury said it intends to boost its cash balance to around $150 billion, enough to pay federal bills for a week should Treasury be locked out of financial markets temporarily.
Effectively, the move is likely to decouple somewhat the date on which the Treasury runs out of borrowing capacity and the date on which the government is unable to pay its bills, which would likely be later under the new cash balance policy.
However, Treasury's Carpenter said the new policy would not result in any new borrowing authority or extend how long Treasury could borrow under the debt limit.
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