Extraordinary Measures, Simplified
On a number of recent occasions, the U.S. government has bumped up against its debt limit. During these times, additional debt could not be issued using normal operations. The Treasury Department used extraordinary measures that generate additional cash to meet financial obligations while still complying with the debt limit.
The debt limit is currently suspended, but when it is reinstated on March 2, 2019, Treasury will again begin to deploy its extraordinary measures. These measures, which have been used since their creation in the 1980s, are a source of confusion to many. What follows is a brief explanation of what they are, how they work, and their limits.
What are they?
Existing statutes allow Treasury to change the normal operations of certain government accounts when the debt limit is reached. While there are a handful of extraordinary measures, most of the Treasury’s added borrowing capacity derives from three measures that allow it to reduce certain types of government debt. Reducing this debt allows Treasury to continue to pay the government’s bills in full and on schedule, but operating under extraordinary measures costs time and effort on behalf of Treasury employees to implement.
The Big Three
Thrift Savings Plan Government Securities Investment Fund (G FUND)
The Thrift Savings Plan for federal employees includes an option that is invested in Treasury debt. Known as the G Fund, it is invested in special non-marketable securities that mature every day. When operating at the debt limit, Treasury can choose not to fully invest this fund from day to day.
Example. Even if federal employees have invested $100 billion in the fund, Treasury could choose to only issue $90 billion in securities to the fund, thereby creating $10 billion of room under the debt limit, which could then be used to auction more debt to the public, raising cash to pay government bills. Once the debt limit is increased or suspended, the G Fund would be restored to the full $100 billion, plus any interest that would otherwise have been earned under full investment of the fund.
Exchange Stabilization Fund (ESF)
This measure works similarly to the G Fund. The ESF is an account that Treasury uses for certain currency-related operations. It is composed of the same securities as the G Fund (one-day certificates). The ESF is much smaller than the G Fund and is often only deployed as an extraordinary measure after the G Fund has been fully depleted of securities.
Civil Service Retirement and Disability Fund (CSRDF)
This measure, which utilizes the main pension fund for federal employees, has several features. Most important are: 1) the ability to avoid adding to the fund’s intragovernmental debt by waiting to credit interest on the fund’s securities and 2) delaying rollovers of its maturing securities until after the debt limit is increased.
Example. If $10 billion of non-marketable debt in the fund is maturing, normally Treasury would issue new securities for the same amount. When up against the debt limit, Treasury can choose to wait to issue these new securities until after the debt limit is increased. The CSRDF measure is most valuable at certain times of the year—namely when interest is paid (semiannually) and when securities mature (once a year). For this reason, sometimes it is very useful, other times it is not, depending on when the debt limit is reached.
When certain non-marketable debt is reduced using extraordinary measures, it creates room under the debt limit.
This room can be used to sell additional debt to the public, which raises cash. That cash is then used to pay bills.
If the debt limit is not increased or suspended, Treasury will run out of extraordinary measures and will only have cash on-hand plus daily revenue collections to make payments.
There are Limits
Extraordinary measures are not unlimited. For example, once the G Fund is down to zero (because it has been completely disinvested), the measure is no longer useful for extending Treasury’s borrowing capacity. At some point, if the debt limit is not increased or suspended, Treasury will run out of extraordinary measures and will only have cash on-hand plus daily revenue collections to make payments. Because the nation runs a deficit, eventually there will not be enough cash on-hand to make all scheduled payments in full and on time.
How Long They Last
The length of time that extraordinary measures last depends both on how many are available—which, among other factors, varies by time of year—and on the size of the government’s deficit. For instance, in March 2017, around $388 billion of measures were available when the debt limit was reinstated, and April tax receipts helped push the “X Date” about six months away to the fall. In contrast, when the debt limit was reinstated in December 2017, only $270 billion in extraordinary measures were available. Combined with the fact that the federal government tends to run a large deficit in February, a March “X Date” was projected, only three months away.
Treasury Cannot Create New Extraordinary Measures
All of these measures are authorized by law and have conditions on when and how they are used, along with how they must be unwound after the debt limit is increased or suspended. Only Congress has the authority to pass legislation to add new measures or change existing measures.