From the U.S. Government Accountability Office, www.gao.gov

Transcript for: The Effects of Delays in Increasing the Debt Limit

Description: Audio interview by GAO staff with Gary Engel, Director,
Financial Management and Assurance

Related GAO Work: GAO-12-701: Debt Limit: 2011-2012 Actions Taken and
Effect of Delayed Increase on Borrowing Costs

Released: July 2012

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[ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and
information from the U.S. Government Accountability Office. It's July
2012. The Budget Control Act of 2011 setup a process for raising the
debt limit incrementally with increases in 2011 and 2012. Delays in
raising the debt limit prompted the Treasury Department to take actions
to avoid exceeding it. A group co-led by Gary Engel, a director in GAO's
Financial Management and Assurance Team, recently reviewed the affect
these delays had on Treasury's borrowing costs and operations. GAO's
Jeremy Cluchey sat down with Gary to talk about what they learned.

[ Jeremy Cluchey: ] What is the debt limit and where does it currently
stand?

[ Gary Engel: ] Over the years, Congress and the President have enacted
laws to establish a limit as to the amount of federal debt that can be
outstanding at any given point in time; that's called the debt limit.
Currently our limit is about 16.4 trillion dollars.

[ Jeremy Cluchey: ] And, can you give a quick recap of how the debt
limit got raised to the 16.4 trillion dollar level from its previous
level?

[ Gary Engel: ] Yes. In January of 2011, the Secretary of the Treasury
notified Congress that the debt limit was likely to be reached sometime
in the period around the end of March 2011; between that and May 16th,
2011. Treasury in the early part of May began to take some actions that
are outside of their typical debt and cash management operations which
they refer to as "extraordinary actions" to help them avoid exceeding
the debt limit. In August 2nd, 2011, Congress, as well as the President,
enacted the Budget Control Act of 2011 which established, amongst other
things, a process which resulted in increases, in increment periods, the
debt limit. The starting point was a $400 billion increase in August of
2011, then there was a $500 billion increase in September, 2011, and
then the final was a 1.2 trillion dollar increase which brought the
total increase to 2.1 trillion dollars and brings us to our current
level.

[ Jeremy Cluchey: ] You mentioned Treasury's extraordinary actions that
they had to take around delays in raising the debt limit. Can you talk a
little bit more about these actions?

[ Gary Engel: ] Yes. Treasury took extraordinary actions both in 2011
and in the January 2012 period and these included suspending investments
in Treasury securities of certain federal government accounts. Treasury
also redeemed some Treasury securities held by the Civil Service
Retirement and Disability Fund, early. We found that the extraordinary
actions that Treasury took in 2011 as well as in January 2012 were
consistent with the relevant legislation and regulations.

[ Jeremy Cluchey: ] Your team also reviewed some of the other effects
that these delays had. Can you talk about these?

[ Gary Engel: ] We estimated that the delays in the--raising the debt
limit in 2011 led to a 1.3 billion dollar increase in borrowing costs
for fiscal year 2011. However, this does not take into account the
multiple year effect on borrowing costs for Treasury securities that
would continue to remain outstanding for years past fiscal year 2011. We
also found that managing the debt during these delays required the use
of Treasury personnel which, according to Treasury, resulted in some of
those individuals not being able to spend and devote time to other
important cash and debt management initiatives and responsibilities.

[ Jeremy Cluchey: ] Finally, for taxpayers who are concerned both with
how the government spends money as well as how we manage our existing
debt, what's the bottom line here?

[ Gary Engel: ] Typically Congress votes on the increases to the debt
limit after fiscal policy decisions that affect the borrowing levels
have already gone into effect. This approach to addressing the increases
in the debt limit don't really facilitate a debate on decisions on
spending and revenue as it relates to the effect that those would have
on debt. In February 2011, we reported and we continue to believe that
Congress should consider to look at ways to better link decisions being
made on increasing the debt limit to decisions being made on spending
and revenue so as to help to avoid any potential disruptions in the
Treasury markets, and to help to inform on the fiscal policy debate in a
timely manner.

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[ Narrator: ] To learn more, visit GAO.gov and be sure to tune in to the
next episode of GAO's Watchdog Report for more from the congressional
Watchdog, the U.S. Government Accountability Office.