WASHINGTON — The debt limit is often seen here as a debate in abstract — placed in political terms to plan campaign ads against Republicans for being reckless or Democrats for being spendthrifts.
Today, however, the first impact of Congress’ failure to do squat about the nation’s debt ceiling will be felt in city halls across Minnesota that have relied for years on money earned from a little-known Treasury security that is, as of today, closed for business.
As the U.S. national debt rises ever nearer to reaching its ceiling, just north of $14 trillion, with Congress still no closer to a vote to raise it, Treasury Secretary Timothy Geithner has begun playing for time. Geithner this week began to implement the first of what the Treasury calls “extraordinary measures,” intended to stave off a crisis until early August.
The first measure to take effect comes today, when the Treasury will quit offering State and Local Government Series securities. The United States is projected to hit its debt ceiling on May 16, Geithner said. On that date, if nothing is done, more extraordinary measures will be taken.
“When Treasury issues SLGS, they count against the debt limit,” Geithner wrote in a letter to House Speaker John Boehner this week, explaining his decision. “Because the United States is very close to reaching the debt limit, Treasury must take this action now.
“However, it is not without costs; it will deprive state and local governments of an important tool to manage their outstanding debt expenses.”
SLGS securities have been frequently used in local governments across Minnesota, from large counties like Ramsey County to small towns like Minnetrista. Currently-held securities will remain valid, but new ones can’t be issued until the debt limit is raised.
Local government administrators described the likely impact of killing off the SLGS (or “Slugs,” as they’re often called) as minimal, noting that they can just buy other, slightly more cumbersome securities instead.
“The added cost and inconvenience of closing the SLGS window will likely not affect the provision of most government services,” Treasury officials said in a 13-point memo [PDF] explaining the move. “However, as state and local governments are struggling with extraordinary challenges due to the recent recession, any added cost or inconvenience is unwanted and only make their challenges more difficult.”
But Treasury officials, Minnesota lawmakers and city finance officials noted this could be the tip of the iceberg if Congress continues to stall on the debt ceiling, forcing Geithner to use more “extraordinary measures.”
Indecision starts to be felt at home
SLGS securities are basically ways for local governments to make a little more money off tax-exempt bonds, by re-investing the money in exceptionally safe, low-interest, short-term securities backed by the full faith and credit of the U.S. Treasury.
“The SLGS are kind of a perfect answer, because you knew the amount of interest in advance and you could purchase them for the exact time you needed,” said Ellen Paulseth, finance director for Forest Lake.
Forest Lake has used SLGS securities off and on for years — most recently they had a $2 million note that matured on Feb. 1 — and Paulseth said they weren’t currently planning on reupping their order. If Forest Lake wanted to reinvest later, she said, there would be other options, though they’re slightly less attractive.
“We would purchase other securities, so we still would have that option. The only difference is that we would have to request three bids and you may not receive the exact rate and the exact due date that you were hoping for.”
“Of course the first casualty is local government,” said Democrat Keith Ellison, in a conversation with MinnPost off the House floor.
“It’s absurd, it’s ridiculous,” he continued. “America should be a country where we all agree that we pay our bills.”
Some Republicans, like presidential aspirants Michele Bachmann and Tim Pawlenty, have said the debt ceiling should not be raised, though no one in Congress or running for president has produced a plan that would even come close to balancing the budget this year, thus eliminating the need for a debt ceiling rise.
Republicans like Chip Cravaack have said they need to see “significant” spending restraints before they’ll vote for an increase in the debt limit, though Cravaack said he hadn’t yet determined what “significant” means for these negotiations. Certainly, he said, the Paul Ryan budget (approved by the GOP-controlled House) is an example of spending reductions that could come before a debt ceiling increase, though that plan has been ruled out in the Senate and by the White House.
“Unless we curb our spending, we’re just going to keep running up our debt,” Cravaack said. “We’re deliberating our best options on how to best get a handle on our debt ceiling. There are no good options.
“We can’t keep on doing nothing,” he continued. “Doing nothing would truly be a dereliction of duty.”
Eventually, lawmakers in both parties say, they expect a deal on the debt ceiling, though no one quite knows when or how.
Said Democrat Collin Peterson, “It’ll get done somehow, I assume.”