Bush may tap retirement funds to avoid hitting debt ceiling

The Bush administration may borrow billions of dollars from federal employee retirement funds, temporarily eliminating the need for Congress to raise the debt ceiling and helping Republicans sidestep a public relations thicket.

According to several sources familiar with the issue, Treasury Secretary Paul O'Neill, who has the authority to tap federal retirement kitties to meet federal obligations, is likely to act on the idea. The move would be a temporary measure that would not jeopardize the retirement accounts, Republicans said. The funds would have to be repaid, with interest.

According to a House Republican leadership aide, Treasury officials presented several options to House leaders last week for tapping retirement funds.

Several sources said Treasury is most likely to borrow from one federal retirement account, the "G Fund." GOP leadership aides said Treasury had indicated it could obtain as much as $40 billion from the G Fund.

Late last month, Treasury issued a statement demanding that Congress take immediate action to increase the $5.95 trillion debt ceiling, which Treasury said could be reached "in just the next few weeks."

But House Republicans refused to pass a stand- alone increase in the debt limit, instead demanding that Treasury come up with other options. This has effectively forced O'Neill to take the extraordinary measure--or default on the government's debt, sources said.

The debt increase bill would expose the GOP to withering attacks from Democrats charging that Republicans squandered the surplus by passing President Bush's tax cut last year, Republican leaders fear. The legislation would attract little or no Democratic support, and it might even fail if Republicans legislators became too fearful of the Democratic onslaught, according to congressional officials.

"We made it very clear to Treasury that we're not having a free-standing vote," said one Republican leadership aide.

Republicans had hoped to attach the debt increase to a wartime supplemental spending measure, which would include provisions for the military and homeland defense. Many Democrats would find such a bill difficult to oppose. But informed sources say a supplemental bill is unlikely to make its way to Capitol Hill before the end of this month.

One GOP leadership aide predicted final action by Congress on the supplemental in May.

Republicans leaders believe the temporary measures they expect Treasury to take will keep the government from defaulting until a supplemental bill is ready.

Some congressional Republicans even hope that if Treasury moves as they expect--and if the economy maintains its current momentum and receipts continue to pick up--that the need to raise the debt limit can be kicked down the road until after Election Day.

Ironically, the steps O'Neill is considering once were used by the Clinton administration to avoid defaulting on debt interest payments during the infamous budget battle with congressional Republicans.

In November 1995, former Treasury Secretary Rubin authorized borrowing $39.8 billion from the Civil Service Retirement Fund and $21.5 billion from the G Fund, raising criticism from Republicans.

Treasury spokeswoman Michelle Davis refused to confirm that any particular action was likely, but she indicated that borrowing from federal retirement funds was on the table.

"We have said many times that we will do what we have to do to avoid a default," Davis said. "The options include everything that Rubin did."

A sign of the roadblocks Republicans would have faced in trying to increase the debt limit is the staunch opposition they are getting from the moderate to conservative Blue Dogs.

As Blue Dog leaders recently told their caucus, Bush "must work with Congress to put the fiscal house back in order" before Congress votes to raise the debt ceiling.

One Blue Dog aide said the group would insist that Bush "submit a revised budget" or at least admit the current budget is "off-course."