WASHINGTON — Treasury Secretary Jacob Lew urged Congress to act swiftly on raising the debt ceiling, saying it was necessary to preserve the nation’s credit rating.
In a letter to House Speaker John Boehner, R-Ohio., Friday, the same day the Treasury Department suspended sales of State and Local Government Series securities, Lew said it was uncertain how long the U.S. will be able to continue to pay its bills.
The Treasury suspended the sale of SLGS to avoid hitting the federal government’s statutory debt limit. The debt limit was suspended by Congress through May 18.
“The effective duration of the extraordinary measures is subject to considerable uncertainty due to a variety of factors, including the unpredictability of tax receipts, changes in expenditure flows under the sequester, the normal challenges of forecasting the payments and receipts of the U.S. government months into the future,” Lew wrote. “At this time, Treasury is not able to provide a specific estimate of how long the extraordinary measures will last.”
An additional source of uncertainty stems from the timing of payments the Treasury will receive from mortgage financing giants Fannie Mae and Freddie Mac. The Treasury expects a payment of approximately $60 billion from Fannie Mae on June 28.
“It is important to note that increasing the debt limit does not increase spending or authorize new spending; rather it simply permits the United States to continue to honor pre-existing commitments to our citizens, businesses and investors here and around the world,” Lew wrote.
Lew said the creditworthiness of the U.S. is “non-negotiable” and not a “bargaining chip to be used for partisan political ends. He also reiterated the administration’s position against the House-passed debt prioritization bill that would enable the Treasury to pay the interest on debt and Social Security obligations first if Congress fails to raise the debt ceiling. President Obama said he would veto the legislation if it were to reach his desk.
Meanwhile, the suspension of the sales of SLGS will probably have a minimal impact on municipal bond issuers, Standard & Poor’s said. The Treasury has suspended SLGS sales nine times in the past 20 years. The most recent suspension lasted about five weeks from December 2012 to early February 2013.
“It will not impact existing escrows at all,” S&P said in a release. “Upcoming refunding opportunities that afford a significant savings opportunity will likely be pursued anyway as bonds become callable. However, for issuers that have looming refinancing risk, or are potentially in a distressed situation and are evaluating restructuring existing debt to literally buy some time, delays could only exacerbate that distress.”
S&P said it expects those instances to be “very limited.” The rating agency also said that it is possible that refunding opportunities may be more costly to the issuer, lead to smaller savings and take longer to complete until SLGS are available again.