US Government Debt Different - Finance Department - University of ...

Howell E. Jacksonwhich payments to prioritize as a Phase Two Debt Crisis proceeds.Back in 1985, congressional leaders solicited an opinion of the then-General Accounting Office to the effect that the Executive retainsthis broad discretionary power, but the opinion contains the mostcursory of analysis and is not especially persuasive. 11 For reasons outlinedabove, Executive personnel would likely be reluctant to assumesuch discretionary authority since many of the choices to be madewill be politically unpalatable and susceptible to public criticism.On the other hand, not all government payments have the same levelof urgency, and one could imagine various rules of prioritization thatwould favor the needy or those payments whose delay might imposesubstantial subsequent costs on the federal government. 1211 See Letter from U.S. Government Accountability Office to Bob Packwood,Chairman, Committee on Finance, United States Senate (Oct. 9, 1985) (available athttp://redbook.gao.gov/14/fl0065142.php). The letter, addressed to Senator Packwoodstates in full: “YOU HAVE REQUESTED OUR VIEWS ON WHETHERTHE SECRETARY OF THE TREASURY HAS AUTHORITY TO DETERMINETHE ORDER IN WHICH OBLIGATIONS ARE TO BE PAID SHOULD THECONGRESS FAIL TO RAISE THE STATUTORY LIMIT ON THE PUBLICDEBT OR WHETHER TREASURY WOULD BE FORCED TO OPERATEON A FIRST IN-FIRST-OUT BASIS. BECAUSE OF YOUR NEED FOR ANIMMEDIATE ANSWER, OUR CONCLUSIONS MUST, OF NECESSITY, BETENTATIVE, BEING BASED ON THE LIMITED RESEARCH WE HAVE BEENABLE TO DO. IT IS OUR CONCLUSION THAT THE SECRETARY OF THETREASURY DOES HAVE THE AUTHORITY TO CHOOSE THE ORDER INWHICH TO PAY OBLIGATIONS OF THE UNITED STATES. ON A DAILYBASIS THE TREASURY DEPARTMENT RECEIVES A NORMAL FLOW OFREVENUES FROM TAXES AND OTHER SOURCES. AS THEY BECOMEAVAILABLE IN THE OPERATING CASH BALANCE, TREASURY MAY USETHESE FUNDS TO PAY OBLIGATIONS OF THE GOVERNMENT ANDTO REISSUE EXISTING DEBT AS IT MATURES. SEE GENERALLY H.R.REPT. NO. 31, 96TH CONG., 1ST SESS. 9-10 (1979). WE ARE AWARE OFNO STATUTE OR ANY OTHER BASIS FOR CONCLUDING THAT TREA-SURY IS REQUIRED TO PAY OUTSTANDING OBLIGATIONS IN THEORDER IN WHICH THEY ARE PRESENTED FOR PAYMENT UNLESSIT CHOOSES TO DO SO. TREASURY IS FREE TO LIQUIDATE OBLIGA-TIONS IN ANY ORDER IT FINDS WILL BEST SERVE THE INTERESTS OFTHE UNITED STATES. UNLESS IT IS RELEASED EARLIER OR WE HEAROTHERWISE FROM YOU, THIS LETTER WILL BE AVAILABLE FOR RE-LEASE TO THE PUBLIC 30 DAYS FROM TODAY.” (Capitalization in original;emphasis added).12 For example, the Executive might be attentive to avoiding the deferral of paymentsthat might trigger liquidated damages provisions or other adverse consequences.Given likely capital market reactions, deferral of debt service payments65