4. Normal Investment and Redemption Procedures Used for Most Trust Funds

Our analysis showed that, during the 1995-1996 debt ceiling crisis, Treasury used its normal investment and redemption procedures to handle the receipts and maturing investments and to redeem Treasury securities for 12 of the 15 trust funds we examined. Actions Related to the Civil Service Fund

During the 1995-1996 debt ceiling crisis, the Secretary of the Treasury redeemed Treasury securities held by the Civil Service fund and suspended the investment of some Civil Service fund receipts. During November 1995 and February 1996 the Secretary of the Treasury redeemed about $46 billion of the Civil Service fund’s Treasury securities before they were needed to pay for trust fund benefits and expenses. Other Actions to Stay Within the Debt Ceiling

In addition to the actions involving the Civil Service fund, during the 1995-1996 debt ceiling crisis, the Secretary of the Treasury (1) suspended the investment of G-Fund receipts and (2) did not reinvest some of the Exchange Stabilization Fund’s maturing securities. Also, the Congress authorized Treasury to issue selected securities that were temporarily exempted from being counted against the debt ceiling. Exchange Stabilization Fund’s Maturing Investments Not Reinvested

On several occasions between February 21 and March 12, 1996, Treasury did not reinvest some of the maturing securities held by the Exchange Stabilization Fund. In the case of the Social Security funds, such a loss could not be restored without special legislation. Conclusions

During the 1995-1996 debt ceiling crisis, Treasury acted in accordance with statutory authorities when it (1) suspended some investments of the G-Fund, (2) exercised its discretion in not reinvesting some of the Exchange Stabilization Fund’s maturing Treasury securities, and (3) issued certain Treasury securities to government trust funds without counting them toward the debt ceiling. However, Treasury’s actions during the crisis resulted in the government incurring about $138.9 billion in additional debt that would normally have been considered as subject to the debt ceiling. Several of Treasury’s actions during the debt ceiling crisis also resulted in interest losses to certain government trust funds. Regarding restoration of the Civil Service fund, Treasury restored the securities that would have been issued had a debt issuance suspension period not occurred and the interest losses.
Why GAO Did This Study

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.

What GAO Found

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.