Senate OKs Debt Bill to Keep SLGS Window Open Through February

Legislation passed by Congress last week will allow the Treasury Department to keep open through February its window for state and local government series securities, which municipal issuers purchase for refunding escrows to avoid earning arbitrage.

Just before the Senate broke for the holiday break on Dec. 24, it approved a bill that would expand the current $12.1 trillion federal debt limit by $290 billion, which is expected to fund government operations for two more months. The vote was 60 to 39, largely along party lines, owing to the Democratic majority.

The House signed off on the bill earlier this month by a vote of 218 to 214 — again mostly on a partisan basis. The measure now has been sent to President Obama for his signature.

Treasury officials had warned lawmakers that it would hit the current limit by the end of the month. As of Dec. 23, the Treasury had $12.103 trillion of public debt outstanding, according its Bureau of Public Debt.

Several Democratic leaders wanted to include a larger extension of the debt ceiling — to the tune of $1.8 or $1.9 trillion — in a military appropriations bill voted on earlier this month. That amount would have allowed the Treasury to borrow funds through the end of 2010, including during the 2010 election season.

Those plans ultimately were set aside when conservative Democrats in both chambers resisted expanding the debt limit without implementing pay-as-you-go budget rules. Republicans were staunchly opposed to the expansion of federal ­spending.

But the temporary fix means lawmakers will have to revisit the politically contentious issue within the next two months for another extension. Senate Majority Leader Harry Reid, D-Nev., told reporters that another expansion to the limit will be the first order of business when the Senate returns Jan. 19.

But the short-term fix means the Treasury will not be forced to close the so-called SLGS window, which is typically one of the first actions it takes whenever it bumps up against the debt ceiling.

Senate Finance Committee chairman Max Baucus, D-Mont., last week said the extension is “a sobering reminder we have work to do in restoring fiscal balance and discipline to government.”

However, Senate Budget Committee ranking minority member Judd Gregg, R-N.H., said the bill is proof that “the U.S. government is in a hole, fiscally speaking, but our leaders cannot seem to stop digging. ... As a result, we find ourselves here on Christmas Eve, forced to pass an increase in the nation’s credit limit.”

The House and Senate earlier this year approved a budget resolution to raise the debt cap to $13.2 trillion in fiscal 2010, then increase it by about $100 billion per year until it reaches $17 trillion in fiscal 2014. However, the resolution was not binding and Congress must enact a law to increase the limit.

Congress last increased the debt limit in January, after analysts from the Congressional Budget Office warned the limit at that time of $11.315 trillion would be exceeded by the spring.

The Treasury last closed the SLGS window in September 2007, before Congress raised the debt limit to $9.8 trillion.

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