WASHINGTON – The Bush administration plans to shift billions of dollars of civil service retirement funds to non-interest-bearing accounts this week in a move to prevent the federal government from defaulting on the national debt.
The Treasury Department's action, announced Tuesday, would free up room for more for government borrowing. Peter Fisher, Treasury's undersecretary for domestic finance, said the juggling of funds could start on Wednesday or Thursday.
The move is necessary because Treasury's request to extend the government's authority to borrow has been mired in a political fight on Capitol Hill. Lower than expected tax payments are putting a big squeeze on the government's cash flow.
Treasury Secretary Paul O'Neill has repeatedly asked Congress to boost the debt limit by $750 billion. The limit now stands at $5.95 trillion.
The juggling of federal retirement accounts will not harm federal employees' retirement next eggs, Treasury officials said.
They said the lost interest payment will be made up in coming months.
Treasury's latest action to avoid breaking the debt limit involves temporarily shifting money from both the government securities retirement fund and the civil service retirement and disability fund into non-interest bearing accounts.
Treasury dodged a default in April by temporarily shifting funds from the government securities retirement account.
Though Treasury is shifting some funds to avoid hitting the debt ceiling for a second time this year, those maneuvers won't be useful in late June. That's because the government will have to make $67 billion in semiannual interest payments to Social Security and other trust funds on June 28 -- an amount that exceeds Treasury's arsenal of maneuvers.
"The Treasury faces obligations in late June that, on the basis of current projections, cannot be surmounted without an increase in the statutory debt limit," Treasury said in a statement Tuesday.
Government payments to Social Security recipients in July also could be disrupted. "Lack of certainty ... will challenge the Treasury's ability to ensure timely processing of payments to Social Security and other beneficiaries," Treasury's statement said.
Without the shifting of funds, Treasury would not be able to borrow the money it will need in coming weeks to keep the government operating, including making payments on debt that is coming due.
If it missed those payments, the government would be technically in default on the $5.95 trillion national debt. That would cast a cloud over U.S. securities, now considered the world's safest investment, and would mean the government would be forced to pay billions of dollars in higher interest payments on the national debt in future years.
"We're doing everything in our power not to have that happen," Fisher said.
Economists and other experts don't think the government will default on the debt because they believe Congress will eventually raise the debt ceiling.
"It's not a question of whether we are going to do it or not. It's just a question of how close to the cliff we're going to run before we do what we know we need to do," O'Neill said last week.