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Prioritizing Payments if the Debt Limit is Reached

This CRS report from early June discusses a number of legal and policy issues (not including the Public Debt Clause) that would arise should Congress not raise the debt limit. Of particular interest is its discussion of the Treasury Secretary’s authority to prioritize payments once the debt limit is reached:

Some have argued that prioritization of payments can be used by Treasury to avoid a default on federal obligations by paying interest on outstanding debt before other obligations. Treasury officials have maintained that the department lacks formal legal authority to establish priorities to pay obligations, asserting, in effect, that each law obligating funds and authorizing expenditures stands on an equal footing. In other words, Treasury would have to make payments on obligations as they come due. With regard to this view, Treasury recently noted that an attempt to prioritize payments was “unworkable” because adopting a policy that would require certain types of payments taking precedence over other U.S. legal obligations would merely be a “failure by the U.S. to stand by its commitments.”

In contrast to this view, GAO wrote to then-Chairman Bob Packwood of the Senate Finance Committee in 1985 that it was aware of no requirement that Treasury much pay outstanding obligations in the order in which they are received. GAO concluded that “Treasury is free to liquidate obligations in any order it finds will best serve the interests of the United States.” In any case, if Treasury were to prioritize, it is not clear what the priorities might be among the different types of spending.

While the positions of Treasury and GAO may appear at first glance to differ, closer analysis suggests that they merely offer two different interpretations of Congress’s silence with respect to a prioritization system for paying obligations. On the one hand, GAO’s 1985 opinion posits that Congress’s legislative silence simply leaves the determination of payment prioritization to the discretion of the Treasury Department. Conversely, Treasury appears to assert that the lack of specific legislative direction from Congress operates as a legal barrier, effectively preventing it from establishing a prioritization system.

The missing piece of this analysis is the constitutional issue. If one believes, as some do, that the Public Debt Clause prohibits default on the “public debt,” then the President is required to prioritize those payments that fall within that constitutionally protected category. This is Jack Balkin’s conclusion.

Personally, I am skeptical that the Public Debt Clause, of its own force, requires the President to do anything, other than not to repudiate or renounce the public debt (which he would lack the authority to do anyway). However, there is a plausible argument that the constitutional principle recognized in Perry v. United States requires that the public debt be repaid in accordance with the terms on which it was borrowed. This would be an extension of Perry’s reasoning, but a plausible one. If that is the case, then the President would be obligated to interpret congressional silence in accordance with this constitutional principle. At the least, the avoidance of constitutional doubt would seem to counsel for an interpretation of the statute that allows for prioritization.

 

5 Comments

  1. Shag from Brookline says:

    This:

    “However, there is a plausible argument that the constitutional principle recognized in Perry v. United States requires that the public debt be repaid in accordance with the terms on which it was borrowed. This would be an extension of Perry’s reasoning, but a plausible one.”

    seems to assume that “public debt” under Section 4 of the 14th Amendment concerns only debt arising from borrowing (presumably money). I think that’s too limiting.

  2. mstern says:

    Perry isn’t about the Public Debt Clause. It is about a principle that pre-existed the 14th Amendment and which stems from the power of Congress to borrow on the credit of the United States and to pay the debts. The Court concludes that the power to borrow does not include the power to say “just kidding” when it comes time to repay. It says that the Public Debt Clause is “confirmatory” of this principle, but it doesn’t say anything about whether the Public Debt Clause has any force beyond this.

    Could the President decide that the reasoning of Perry can be extended even further to obligations other than bonds? I suppose it is possible. But even Professor Balkin acknowledges it would be difficult to extend it to Social Security (since the Court has expressly held that there is no vested right to receive Social Security payments).

  3. Shag from Brookline says:

    I understand the situation regarding Social Security payments. But there are contractual and other (5th Amendment takings?) obligations of the federal government that can result in debt other than bonds or other means of borrowings of money. My point is that “public debt” is not defined in Section 4 of the 14th Amendment. Nor does Section 4 spell out what can be done by the Executive or Congress or Judiciary such that the validity of such debt ” … shall not be questioned.”

  4. Daniel Schuman says:

    This is a side issue — has CRS written a brief going through the 14th amendment issues? It seems like they should have….

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