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Debt Management: Treasury Has Refined Its Use of Cash Management Bills but Should Explore Options That May Reduce Cost Further

GAO-06-269 Published: Mar 30, 2006. Publicly Released: Mar 30, 2006.
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Highlights

One result of persistent fiscal imbalance is growing debt and net interest costs. Net interest is currently the fastest-growing "program" in the budget and, if unchecked, threatens to crowd out spending for other national priorities. This report was done under the Comptroller General's authority. GAO examined the Department of the Treasury's (Treasury) growing use of unscheduled short-term cash management bills (CM bills). Specifically GAO (1) describes when Treasury uses CM bills and why, (2) describes the advantages and disadvantages of CM bills, (3) describes steps taken by Treasury to reduce the overall borrowing costs associated with CM bills, and (4) identifies possible options Treasury could consider to reduce the use and cost of CM bills further.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of the Treasury We identified options that could potentially reduce the use and cost of CM bills. Treasury should explore options such as those discussed in this report and any others it identifies that may help Treasury meet its objective of financing the government's borrowing needs at the lowest cost over time. We recognize that there are a number of tradeoffs to consider. In its exploration, Treasury should consider the costs and benefits of each option and determine whether the benefits--in the form of lower borrowing costs--to the federal government (and so to taxpayers) outweigh any costs imposed on individuals, businesses, and other nonfederal entities. Treasury should also consider how options may be combined to produce more beneficial outcomes. Implementing some of these options would require changes to statute or regulations. If Treasury determines that any of these changes would be beneficial, we encourage Treasury to begin discussions with relevant federal agencies and the Congress about obtaining the necessary authorities.
Closed – Implemented
In August 2006, Treasury told us it is exploring three specific options mentioned in our report: (1) possible changes to borrowing programs; (2) ways to manage the timing of cash flows; and (3) ways to increase earnings on its cash balances. Specifically, we identified reverse repurchase agreements as a potential way to increase earnings on excess cash balances, thereby reducing the costs associated with running higher cash balances and ultimately reducing the use of some CM bills. Since March 2006, Treasury has been running a Repurchase Agreement Pilot Program and assessing the impact of investing funds through repurchase transactions on Treasury's and the Federal Reserve System's operations, processes and systems. Treasury requested expanded investment authority in the President's FY 2008 budget.

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Topics

Borrowing authorityCash basis accountingCash managementDebt subject to statutory limitationFinancial analysisInterestLending institutionsFiscal policiesPolicy evaluationSecurities