FEDweek

Approach of Debt Ceiling Adds to Uncertainty for Federal Employees

Along with the pending need to continue agency spending authority past the end of September to prevent a partial government shutdown, an added complication this year is that the government is to hit the debt ceiling about the same time.

While the government has never exceeded that limit, it has come close many times and already is technically above it. However, the Treasury Department has used certain financial maneuvers–including one involving the TSP G fund–to push back the deadline. The money made available through those moves is to be used up around the end of September.

Unlike a funding lapse in which there would be a partial government shutdown, if the government exceeded the debt limit, agencies could remain open and the government could continue to paying some bills out of the money coming in. That’s according to several studies done for Congress in prior years as the government approached debt ceilings.

Those reports say that the government could continue to operate on that basis while taking on obligations to eventually pay for costs beyond its current income. Exactly how it would handle those obligations–including to pay the salaries of federal employees and annuities of retirees–is unexplored territory.

Options include paying a prorated amount toward every one; paying on a first-in, first-out basis; and paying first on other priorities, such as on contracts that would trigger late-payment penalties against the government otherwise. Studies of the issue warn, though, that the potentially severe impacts on the economy of breaching the ceiling would outweigh even those considerations.