WASHINGTON — Treasury Department officials said yesterday that they expect the federal debt to bump up against its $12.1 trillion statutory limit by the end of this calendar year but have not yet asked Congress to take action to increase the debt ceiling.
The federal government had almost $11.7 trillion of outstanding public debt this week.
The House and Senate earlier this year approved a budget plan that would raise the debt cap to $13.2 trillion in fiscal 2010, then increase it by about $100 billion per year until it reached $17 trillion in fiscal 2014. However, Congress must enact a law to increase the limit to that amount.
In its latest quarterly refunding statement issued this week, Treasury officials said: “Given the uncertainty surrounding potential borrowing needs, Treasury will continue to keep Congress and financial market participants apprised of developments as the debt outstanding approaches the statutory limit.”
If the limit is not increased before Treasury reaches the limit, sales of State and Local Government Series securities to muni issuers for advance refunding escrows could be halted — although some market participants think the impact of that would be minimal.
There was a modest uptick in advance refundings this year over last year, “but still very modest levels compared to prior years,” said Matt Fabian, managing director of Municipal Market Advisors.
About $37.4 billion of SLGS have been sold so far this calendar year. That is down from $46.9 billion as of this time last year, and $86.5 billion during the same period in 2007. However, issuance tends to be somewhat volatile — dropping to $41 billion in 2006 from $106.4 billion in 2005, for example — and depends on several factors such as Treasury note costs, which are relatively high right now, Fabian said.
Muni issuers are unlikely to be spooked by the federal debt limit needing to be increased again, he said. The limit has already been raised by about $1 trillion since January.
“I think there’s an assumption that if the [SLGS] window closes, it will be brief,” Fabian said. Besides, he added, “most issuers aren’t doing advance refundings right now.”
Most of the volume for this year has been current refundings instead of advance refundings, he said. But he predicted an increase in refundings “for issuers looking to refinance” their debt to close their budget gaps.
Treasury last closed the SLGS window in September 2007, before Congress raised the debt limit to $9.8 trillion.
The gross debt has risen from $5.8 trillion in 2001, according to the Senate Budget Committee. The economic collapse and subsequent recovery package were mostly responsible for doubling the debt over the past eight years, the committee said.