Since 2008, ten different U.S. municipalities were forced to declare bankruptcy. One of the leading causes of these fiscal crises was inability to cover pension costs for public employees. Many states are also trying to figure out how to finance their unfunded pension obligations. Just this week, Puerto Rico managed to make a last minute payment on its bond debt and thus avoided default, but analysts are very concerned that the U.S. territory will be unable to meet future payments or cover its payroll costs.
The U.S. government is not immune to such problems. On June 19 the Director of the Congressional Budget Office warned Congress, “The long-term outlook for the federal budget has worsened dramatically over the past several years.” Without major reforms going forward, deficits and debt will rise to unsustainable levels.
On March 13, the level of publicly issued debt reached $18.1 trillion, just $25 million shy of the statutory limit. The amount has been frozen at that level for the past 15 weeks as the Department of the Treasury has implemented “extraordinary measures” in order to continue to finance its obligations. But as expenditures from the Treasury continue to exceed revenues into it, these measures will only last for so long.
At the beginning of FY 2009, the federal debt stood at $10.1 trillion. By the dawn of FY 2010, it had risen by $34.5 billion per week on average to $11.9 trillion. Since then the debts' rate of growth gradually slowed to $11.1 billion per week in FY 2013 before rising to $20.8 billion per week in 2014. The debt stood at $17.8 trillion at the beginning of the current Fiscal Year and grew by $12.2 billion per week until it was frozen at its current level. It is expected that the Treasury’s ability to employ its extraordinary measures will expire sometime this fall at which time, barring Congressional action, it will have to begin prioritizing its obligations.
While it seems that there has not been much discussion in the news about the looming debt crisis here at home, the headlines about Greece’s and Puerto Rico’s budgetary dilemmas are a stark – although perhaps unwelcomed – warning of the fiscal ramifications that could occur if the debt is allowed to continue to grow unabated.
An earlier debt crisis in 2011 was resolved by passage of the Budget Control Act which lifted the ceiling but also set in place budgetary spending caps and automatic cuts. Since then Republican leaders have generally sought to avoid budgetary brinksmanship over the debt. The Bipartisan Budget Act of 2013, a compromise worked out between Rep. Paul Ryan and Sen. Patty Murray, the respective Budget Chairs, raised the caps and instituted additional spending reforms that, over the short term, partially offset the increase in spending. The White House has consistently argued that Congress must lift the debt ceiling because the obligations were previously promised through acts of law. In February 2014, Congress acquiesced through the Temporary Debt Limit Extension Act which did away with the limit through this past March.While it remains to be seen how this looming impasse will be resolved, there are measures in Congress that would reduce spending. Unfortunately, they are outnumbered by bills that would increase outlays.