Geithner: Debt Limit Will Be Hit By May 16; SLGS at Risk After That

WASHINGTON — The federal debt limit must be increased by May 16 or the Treasury Department will have to take extraordinary measures, such as suspending the sale of state and local government series securities to muni issuers, Treasury Secretary Timothy Geithner said Monday.

“These actions, which have been employed during previous debt-limit impasses, would be exhausted after approximately eight weeks, meaning no headroom to borrow within the limit would be available after about July 8, 2011,” Geithner told House and Senate leaders in a three-page letter.

“As secretary of the Treasury, I would prefer to avoid resorting to these extraordinary measures,” he said.

SLGS are specially tailored Treasury securities issued to state and local governments for their advance refunding escrows. The SLGS match the maturity dates of the bonds being refunded. Issuers can buy them rather than open-market Treasury securities to ensure their investment yield does not exceed their bond yield and violate the tax law.

Geithner pointed out in a six-page appendix attached to his letter that a suspension of SLGS issuance would conserve space under the debt limit because SLGS count as federal debt.

About $182.4 billion of SLGS were outstanding at the end of February, according to the Treasury. Roughly $3 billion to $12 billion of the securities are issued in any given month, though the amount is subject to substantial variation, officials said.

The Treasury has suspended SLGS sales six times in the past, the most recent of which was Sept. 27-28, 2007, according to the department. The other suspensions were: Feb. 16 to March 16, 2006; Oct. 14 to Nov. 21, 2004; Feb. 19 to May 26, 2003; May 15 to July 7, 2002, and Oct. 18, 1995, to March 28, 1996.

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