O'Neill may borrow to avoid debt limit clash By Deborah McGregor in Washington Published: March 12 2002 20:15 | Last Updated: March 12 2002 21:39
Paul O'Neill, the US treasury secretary, is considering borrowing billions of dollars from federal employee retirement funds as a way of avoiding a clash with Congress over legislation to raise the federal debt limit, according to congressional sources.
It would not be the first time such a manoeuvre has been used. During the budget battles of 1995-96, Robert Rubin, President Clinton's treasury secretary, used a similar tactic to buy time until Congress approved an increase in the debt ceiling, which represents the maximum amount of debt the US Treasury is allowed to issue.
However, it may be more difficult for the Bush administration to defend the temporary move in a post-Enron environment in which questionable accounting practices have come under harsh scrutiny.
An increase in the debt limit has been made necessary by the nation's return to deficits.
The current ceiling, set in 1997, is $5,950bn. President George W. Bush and Mr O'Neill have repeatedly asked Congress to increase it by $750bn by the end of this month, or the government will be unable to meet its obligations.
Usually, raising the debt limit would be a routine matter. But the move comes as the parties are gearing up for their annual budget battles. Democrats have been eager to highlight what they claim is fiscal mismanagement by the Bush administration and they see the debt limit issue as vitally important to their case.
Part of the administration's aim is to find enough money to carry the government into April, when many Americans pay income taxes. The influx of cash might even let Congress put off the borrowing limit increase, according to one senior House Republican.
But the Treasury department does not share that view. In a recent statement, it made clear it sees a permanent increase in the debt limit as crucial to preserving confidence in the government and "to prevent uncertainty that could damage our economic recovery".
The Senate's Democratic majority had been considering raising the debt limit only by a small amount. That could force Congress to vote on the issue again this autumn - just before voters decide control of the House and Senate.
The administration has found itself in the embarrassing position of being unable to count on members of its own party in the Republican-led House to help raise the debt ceiling. That is because many conservative Republicans are opposed to the move.
The lack of Republican support, plus the guaranteed opposition of House Democrats, has left the White House short of the votes needed to pass a stand-alone bill.
Republican leaders hope the temporary measures being contemplated by the treasury will keep the government from defaulting until other legislation - possibly a bill providing more funding for the war on terrorism - can be passed, carrying the debt limit increase.
According to a Republican aide, treasury officials presented several options to House leaders last week.
Many Republicans were reportedly unhappy with the choices, believing they were highly vulnerable on the issue at a time when Enron's collapse has heightened political sensitivities about accounting sleights-of-hand.