U.S. Treasury Evaluating Various Scenarios for Debt Limit Reinstatement

WASHINGTON—The Treasury Department said Wednesday it may have to take extraordinary measures to fund the government if the federal borrowing limit is reinstated this summer, but warned it could run out of cash much sooner than in previous debt limit episodes.

The Treasury said it expects Congress will vote to raise or suspend the borrowing limit before the current suspension expires on Aug. 1. If it doesn’t, the Treasury will take steps as it has in the past to continue to temporarily finance government operations.

But officials emphasized that the government continues to face sizable and uncertain borrowing needs related to the pandemic, as well as substantial uncertainty about government revenues and spending over the coming months.

That makes it very difficult to predict how long extraordinary measures might last, senior officials said on a call with reporters.

“Treasury is evaluating a range of potential scenarios, including some in which extraordinary measures could be exhausted much more quickly than in prior debt limit episodes,” Brian Smith, Treasury’s deputy assistant secretary for federal finance, said in a statement Wednesday.

Once the debt limit is reinstated, the Treasury can no longer tap bond markets to raise new cash to finance government operations. In the past, extraordinary measures have typically lasted for several months.

The Treasury said earlier this week it plans to draw down its cash balance ahead of the debt limit deadline, but officials said Wednesday that shift will be much less volatile than in previous debt limit episodes.

The government expects to reduce bills outstanding by $150 billion through the end of July, bringing the Treasury’s cash balance to about $450 billion.

Officials also announced few changes to the Treasury’s borrowing plans for the current quarter, maintaining auction sizes for nominal coupon and floating rate notes, and gradually increasing auction sizes for Treasury inflation-protected securities, or TIPS.

Write to Kate Davidson at kate.davidson@wsj.com

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