OK, that’s my headline and opinion. But give this a read. The GAO is out a major report that looks at the cost and consequences of the 2011 fight over the debt limit.
As you might expect it is not the most efficient way to run a government.
Via the transcript of a GAO interview with
We estimated that the delays in the–raising the debt limit in 2011 led to a 1.3 billion dollar increase in borrowing costs for fiscal year 2011. However, this does not take into account the multiple year effect on borrowing costs for Treasury securities that would continue to remain outstanding for years past fiscal year 2011. We also found that managing the debt during these delays required the use of Treasury personnel which, according to Treasury, resulted in some of those individuals not being able to spend and devote time to other important cash and debt management initiatives and responsibilities.
And from the report itself a few conclusions after the jump:
BPD–the bureau within Treasury that is responsible for implementing the extraordinary actions and for the accounting associated with those transactions–also dedicated extensive resources to operations related to the debt limit. BPD estimated that managing federal debt when delays in raising the debt limit occurred in 2011 and January 2012 resulted in almost 5,750 hours of work, including over 400 hours of overtime and compensatory time. This included more than 1,200 hours in the weeks prior to the use of extraordinary actions for meetings, preparation of parallel accounts and spreadsheets to use in tracking uninvested principal and interest losses, tests of the accounting system, and training staff. The majority of time was spent implementing the extraordinary actions. BPD estimated that it spent almost 63 staff hours per business day on debt limit-related activities from May 16, 2011, through August 1, 2011, and almost 31 staff hours per business day from January 4, 2012, through January 27, 2012. After the debt limit was increased, BPD estimated that it spent over 500 hours on activities such as restoring uninvested funds and preparing reports.
Treasury officials said that the increased focus on debt limit-related operations in the months and weeks approaching the debt limit diverted time and attention from other cash and debt management tasks that could improve Treasury operations. For example, according to Treasury officials, OFP delayed participation in federal cash expenditure process modernization efforts and the development of a new fiscal forecasting system. Similarly, BPD officials said that they spent less time updating procedures for issuing debt to the public and
modernizing debt accounting systems. According to these officials, these activities help Treasury more accurately project future borrowing needs and perform debt management activities more effectively. More accurately projecting future borrowing needs helps
Treasury avoid (1) borrowing more than is needed to fund the government’s immediate needs, which results in increased interest costs, and (2) borrowing less than is sufficient to maintain
Treasury’s operating cash balance at a minimum level through regularly scheduled issuances of marketable Treasury securities, which may require Treasury to issue CM bills with little advance notice to the market, resulting in potentially higher interest costs. Treasury officials also stated that they spent less time on staff development and program oversight activities to perform additional tasks needed to manage federal debt when delays in raising the debt limit occurred.Concluding Observations:
The extraordinary actions Treasury took during 2011 and January 2012 to manage federal debt when delays in raising the debt limit occurred were consistent with relevant authorizing legislation and regulations.
However, delays in raising the debt limit can create uncertainty in the Treasury market and lead to higher borrowing costs. We estimated that delays in raising the debt limit in 2011 led to an increase in Treasury’s borrowing costs of about $1.3 billion in fiscal year 2011.
However, this does not account for the multiyear effects on increased costs for Treasury securities that will remain outstanding after fiscal year 2011. Further, managing federal debt as such delays occurred was complex, time-consuming, and technically challenging.
According to Treasury officials, these events diverted Treasury’s staff away from other important cash and debt management responsibilities as well as staff development and program oversight activities.Congress usually votes on increasing the debt limit after fiscal policy decisions affecting federal borrowing have begun to take effect. This approach to raising the debt limit does not facilitate debate over specific tax or spending proposals and their effect on debt. In February 2011, we reported, and continue to believe, that Congress should consider ways to better link decisions about the debt limit with decisions about spending and revenue to avoid potential
disruptions to the Treasury market and to help inform the fiscal policy debate in a timely way.
