Budget Side Benefit: Moving a Debt Limit Increase

May 15, 2008

As Democrats move towards adopting a final budget resolution next week, adoption will come with a tangible benefit — it will start the process of increasing the government’s debt limit. Congress will likely need to increase the statutory debt limit this year — earlier than expected — as the government’s near-term fiscal outlook has deteriorated. Although budget leaders earlier this year expressed confidence that the government wouldn’t run up against the current debt limit until early next year, even with the costs of the economic stimulus package, congressional staff involved with tracking the issue say the fiscal picture has since declined, as federal revenues came in lower than expected. Congress last raised the debt limit last year when it enacted an $850 billion increase to the current statutory cap of $9.815 trillion.

Under the so-called “Gephardt rule,” the House will automatically pass legislation to increase the debt ceiling when a final budget has been adopted by both chambers. That rule is intended to help House lawmakers avoid the often politically painful need to cast a vote on the issue; the Senate has no similar rule, however, and is usually faced with a recorded vote. The House version of the budget resolution calls for a $385 billion debt ceiling increase, but budget conferees may elect to increase that amount given the fiscal situation. The likely need for Congress to act is also partly driven by the fact that should timing for hitting the debt limit occur near the end of the year, Treasury would have much less flexibility to shift around assets and avoid default since the agency at year-end must make certain Social Security and Medicare trust fund payments. Consequently, Congress would either need to act before leaving for the November elections, or return for a post-election “lame duck” session. 

The Senate will appoint conferees to the budget resolution today, after the House last night appointed its own conferees. House Republicans used their “motion to instruct conferees” to argue for increased oil exploration and development in the United States, calling for conferees to adjust the measure’s budget levels to assume $2 billion in increased revenues by expanding federal leases for oil exploration and development in the western federal lands, the Outer Continental Shelf, and the Arctic National Wildlife Refuge. Such motions are non-binding, but the House nevertheless rejected the motion by a 185-229 vote. Unlike the House, the Senate usually entertains multiple motions to instruct conferees, from both parties.