Debt Ceiling Debate: Immediate Recommendations for Governments with Exposure in U.S. Treasuries

If the federal debt ceiling agreement is not resolved by June 1, the United States federal government could miss or delay payment on their obligations. This would constitute a technical default which means that debts (including interest and principal on U.S. Treasuries, as well as other payments) will likely be paid; however the timing of the payments could be delayed.

GFOA recommends that governments should regularly review their investment portfolios (see best practices: Investment Policy and Investment Program for Public Funds).

Due to the nature and timing of this circumstance, GFOA recommends specific immediate action:

• Governments should review their investment portfolio, and confirm investment holdings in US Treasuries, including other products that may be invested in Treasuries, such as LGIPs, and the date these investments mature.
• Governments should also know if those investments are needed for certain obligations (such as a debt service payment).
• Governments should be positioned to have cash on hand to meet obligations in the event that their entity does not receive principal or interest payments from their treasury investments as scheduled.

Governments should also be aware that if they have escrows coming due for refunded bonds and those funds are backed by U.S. Treasuries and/or SLGS, they should discuss this situation with their escrow agent, municipal advisor, and financing team. Governments should be aware that the SLGS window is closed and will remain so until the debt ceiling debate is resolved.

Additionally, for more information and advocacy on the "unobligated" COVID funds provision that has been part of recent proposals to address the debt ceiling, see this previously released Member Alert.

Please stay tuned for any updates on the debt ceiling debate from GFOA’s Federal Liaison Team.