Debt Ceiling:

Analysis of Actions During the 1995-1996 Crisis

AIMD-96-130: Published: Aug 30, 1996. Publicly Released: Aug 30, 1996.

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Pursuant to a congressional request, GAO reviewed the Department of the Treasury's actions during the 1995-1996 debt ceiling crisis, focusing on: (1) investments and redemptions in federal trust funds; and (2) the Treasury's restoration of fund losses.

GAO found that: (1) during the 1995-1996 debt ceiling crisis, Treasury followed normal investment and redemption procedures for 12 of the 15 major government trust funds; (2) Treasury suspended normal investments and redemptions for the Civil Service Retirement and Disability Trust, Government Securities Investment (G-fund), and Exchange Stabilization Funds and took other actions to stay within the debt ceiling; (3) these actions were proper and consistent with the Secretary of the Treasury's legal authority; (4) as required, the Secretary of the Treasury determined in November 1995 that a debt issuance suspension period existed prior to exercising his authority; (5) Treasury redeemed $46 billion in Civil Service fund securities in November 1995 and February 1996 and suspended investment of $14 billion in fund receipts in December 1995; (6) Treasury exchanged about $8.6 billion in Civil Service fund securities for Federal Financing Bank (FFB) securities, which FFB then used to repay borrowings from the Treasury; (7) Treasury suspended some investments and reinvestments of G-fund receipts and maturing securities during the crisis; (8) on several occasions, Treasury did not reinvest some of the maturing securities held by the Exchange Stabilization Fund; (9) in March 1996, Treasury issued some securities that were temporarily exempt from the debt ceiling, which allowed it to pay $29 billion in social security benefits and invest $58.2 billion in fund receipts and maturing securities; (10) although the Treasury did not technically exceed the debt ceiling during the crisis, the government incurred about $138.9 billion in additional debt that normally would have been subject to the ceiling; (11) several Treasury actions resulted in interest losses to certain government trust funds; and (12) Congress raised the debt ceiling to $5.5 billion at the end of March 1996, and Treasury fully restored the Civil Service fund's and the G-fund's interest losses by June 1996, but it could not restore the Stabilization fund's interest loss without special legislation.

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