Current situation:

· The current statutory debt limit is $5,950 billion. The debt outstanding subject to limit on April 1 was $5,928 billion. The debt subject to limit includes "Debt Held by the Public" (57%) and "Intra-governmental Holdings of Debt" (43%). Civil service, military retirement and Social Security account for 75% of Intra-governmental Holdings.

· Beginning on April 4, 2002 and ending on or about April 18, 2002, actions are needed to prevent the government from hitting the debt limit.

· During the first week of April, recurring monthly federal benefit payments and other disbursements will exceed collections by $45 – 50 billion. Monthly recurring benefit payments totaling more than $45 billion will be made for programs such as Social Security ($27 billion), Medicare, and civilian and military payroll and retirement. Tax refunds ($10 billion) and other disbursements are expected to total more than $35 billion. Tax receipts from individuals and corporations are only expected to total about $35 billion.

Necessary Action:

· Each year, Treasury faces seasonal cash shortages in early April in advance of tax receipts in mid-April. Treasury needs to issue short-term cash management bills (CMBs) to bridge this period. There is insufficient room under the current debt limit to issue the needed CMBs.

· To ensure payment of the tax refunds and recurring benefits this week, the Secretary must draw on his statutory authority to avoid hitting the debt limit.

· The Secretary has today notified in writing the Congress and the Executive Director of the Federal Retirement Thrift Investment Board of his intention to suspend investments of securities in the Government Securities Investment Fund (G-Fund) beginning on April 4 and ending on or about April 18, 2002. The G-Fund is part of the Federal Employee Retirement System (FERS).

· As of April 1, the G-Fund has investments of $40 billion in overnight non-marketable Treasury securities. Other FERS funds are invested in corporate bonds, S&P 500 equities, small cap equities, and foreign equities.

· Beginning on April 4, 2002 and ending on or about April 18, 2002, Treasury will exchange between $5 – 35 billion of the $40 billion in non-marketable Treasury securities in the G-Fund for the same amount of credit balances. Consequently, debt subject to limit will be reduced by the same amount.

· Congress has provided the specific authority to use in this situation; it was similarly used by the previous Administration.

· G-Fund beneficiaries are fully protected and will experience no adverse consequences from this action. The Secretary will recredit the G-Fund once the Treasury can do so without exceeding the public debt limit (on or about April 18th). Any interest that was not credited during that period will be immediately credited to the Fund. Congressional action to raise the debt ceiling would allow the Secretary to do this sooner.

· The result on the G-Fund and its beneficiaries will be the same as if this temporary action had never taken place.


· During the debt-ceiling impasse in 1985, Treasury was unable to follow its normal trust fund investment and redemption policies and procedures. Treasury suspended investment of certain trust fund receipts and redeemed some Treasury securities issued to one trust fund earlier than normal to pay fund benefits.

· In 1986, the Congress provided the Secretary of the Treasury with statutory authority to exchange securities in the G-Fund to prevent exceeding the debt ceiling. The statutory reference is 5 U.S.C. 8438(h)(2).

· On Nov. 15, 1995, then Treasury Secretary Rubin exchanged about $18 billion of the approximately $21.6 billion of Treasury securities held in the G-Fund for the same amount of credit balances to prevent exceeding the debt limit.