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1,500 | ade no changes to the report in response to this comment. Third, DOE stated that using the amount of water in the White River at Meeker, Colorado, to illustrate the availability of water for commercial oil shale development understates water availability. We disagree with DOE’s characterization of our illustration. The illustration we use in the report is not meant to imply that an entire three-state industry would be limited by water availability at Meeker. Rather, the illustration explores the limitations |
1,501 | of an in-situ oil shale industry only in the Piceance Basin. More than enough water appears available for a reasonably sized industry that depends on mining and surface retorting in the Piceance basin. Our illustration also suggests that there may be more than enough water to supply a 2.5 million barrel-per-day in-situ industry at minimum water needs, even considering the needs of current water users and the anticipated needs of future water users. In addition, the illustration suggests that there may be e |
1,502 | nough water to supply an in-situ industry in the Piceance Basin of between 1 and 2 million barrels per day at average water needs, depending upon whether all the water in the White River at Meeker is used or only water that is expected to be physically and legally available in the future. However, the illustration does point out limitations. It suggests that at maximum water needs, an in-situ industry in the Piceance Basin may not reach 1 million barrels per day if it relied solely on water in the White Riv |
1,503 | er at Meeker. Other sources of water may be needed, and our report notes that these other sources could include water in the Yampa or Colorado Rivers, as well as groundwater. Use of produced water and recycling could also reduce water needs as noted in the draft report. Consequently, we made no changes to the report in response to this comment. Fourth, DOE stated that the report gives the impression that all oil shale technologies are speculative and proving them to be commercially viable will be difficult, |
1,504 | requiring a long period of time with uncertain outcomes. We disagree with this characterization of our report. Our report clearly states that there is uncertainty regarding the commercial viability of in-situ technologies. Based on our discussions with companies and review of available studies, Shell is the only active oil shale company to have successfully produced shale oil from a true in-situ process. Considering the uncertainty associated with impacts on groundwater resources and reclamation of the ret |
1,505 | orted zone, commercialization of an in-situ process is likely to be a number of years away. To this end, Shell has leased federal lands from BLM to test its technologies, and more will be known once this testing is completed. With regard to mining oil shale and retorting it at the surface, we agree that it is a relatively mature process. Nonetheless, competition from conventional crude oil has inhibited commercial oil shale development in the United States for almost 100 years. Should some of the companies |
1,506 | that DOE mentions in its letter prove to be able to produce oil shale profitably and in an environmentally sensitive manner, they will be among the first to overcome such long-standing challenges. We are neither dismissing these companies, as DOE suggests, nor touting their progress. In addition, it was beyond the scope of our report to portray the timing of commercial oil shale production or describe a more exhaustive history of oil shale research, as DOE had recommended, because much research currently is |
1,507 | privately funded and proprietary. Therefore, we made no changes to the report in response to this comment. DOE’s comments are reproduced in appendix IV. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the appropriate congressional committees, Secretaries of the Interior and Energy, Directors of the Bureau of Land Management and U.S. Geological |
1,508 | Survey, and other interested parties. In addition, the report will be available at no charge on GAO’s Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact one of us at (202) 512-3841 or [email protected] or [email protected]. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Key contributors to this report are listed in appendix V. To determine what is known about the potential impact |
1,509 | s to groundwater and surface water from commercial oil shale development, we reviewed the Proposed Oil Shale and Tar Sands Resource Management Plan Amendments to Address Land Use Allocations in Colorado, Utah, and Wyoming and Final Programmatic Environmental Impact Statement (PEIS) prepared by the Bureau of Land Management in September 2008. We also reviewed environmental assessments prepared on Shell Oil’s plans for in-situ development of its research, demonstration, and development (RD&D) tracts in Colora |
1,510 | do and on the Oil Shale Exploration Company’s (OSEC) plan to mine oil shale on its RD&D tract in Utah because these two companies have made the most progress toward developing in-situ and mining technologies, respectively. In addition, we reviewed the Office of Technology Assessment’s (OTA) 1980 report, An Assessment of Oil Shale Technologies; the Rand Corporation’s 2005 report, Oil Shale Development in the United States; and the Argonne National Laboratory’s 2005 report, Potential Ground Water and Surface |
1,511 | Water Impacts from Oil Shale and Tar Sands Energy-Production Operations. Because the PEIS was the most comprehensive of these documents, we summarized impacts to groundwater and surface water quantity and quality described within this document and noted that these impacts were entirely qualitative in nature and that the magnitude of impacts was indeterminate because the in-situ technologies have yet to be developed. To confirm these observations and the completeness of impacts within the PEIS, we contacted |
1,512 | the Environmental Protection Agency, the Colorado Division of Water Resources, the Colorado Water Conservation Board, the Division of Water Quality within the Colorado Department of Public Health and Environment, the Utah Division of Water Resources, the Utah Division of Water Quality, and the Utah Division of Water Rights—all of which have regulatory authority over some aspect of water resources. To ensure that we identified the range of views on the potential impacts of oil shale development on groundwate |
1,513 | r and surface water, we also contacted the U.S. Geological Survey (USGS), the Colorado Geological Survey, the Utah Geological Survey, industry representatives, water experts, and numerous environmental groups for their views on the impacts of oil shale on water resources. To assess the impacts of oil shale development on aquatic resources, we reviewed the PEIS and contacted the Colorado Division of Wildlife and the Utah Division of Wildlife Resources. To determine what is known about the amount of water tha |
1,514 | t may be needed for commercial oil shale development, we searched the Internet and relevant databases of periodicals using the words “oil shale” together with “water use.” We also searched Web sites maintained by the Bureau of Land Management (BLM), USGS, and the Department of Energy (DOE) for information on oil shale and water use and interviewed officials at these agencies to determine if there were additional studies that we had not identified. We also checked references cited within the studies for othe |
1,515 | r studies. We limited the studies to those published in 1980 or after because experts with whom we consulted either considered the studies published before then to be adequately summarized in OTA’s 1980 report or to be too old to be relevant. We included certain data within the OTA report because some of the surface retort technologies are similar to technologies being tested today. We did not consider verbal estimates of water needs unless companies could provide more detailed information. The 17 studies t |
1,516 | hat we identified appear in table 7. For further analysis, we divided the studies into two major groups—in-situ extraction and mining with a surface retort. We dismissed a combination of mining and in-situ extraction because most of these technologies are more than 30 years old and generally considered to be infeasible today. The single company that is pursuing such a combination of technologies today—Red Leaf Resources— has not published detailed data on water needs. After reviewing these studies, we found |
1,517 | that most of the studies did not examine water needs for the entire life cycle of oil shale development. As such, we identified logical groups of activities based on descriptions within the studies. We identified the following five groups of activities: (1) extraction and retorting, (2) generating power, (3) upgrading shale oil, (4) reclamation, and (5) population growth associated with oil shale development. We did not include refining because we believe it is unlikely that oil shale production will reach |
1,518 | levels in the near- or midterm to justify building a new refinery. To characterize the water needs for the entire life cycle of oil shale development, we identified within each study the water needs for each of the five groups of activities. Except for OTA’s 1980 report, which is now 30 years old, we contacted the authors of each study and discussed the estimates with them. If estimates within these studies were given for more than one group of activities, we asked them to break down this estimate into the |
1,519 | individual groups when possible. We only considered further analyzing water needs for groups of activities that were based on original research so as not to count these estimates multiple times. For example, original research on water needs for extraction and retorting may have analyzed mine plans, estimated water needs for drilling wells, estimated water needs for dust control, and discussed recycling of produced water. Original research on water needs for population growth may have discussed the number o |
1,520 | f workers immigrating to a region, their family size, per capita water consumption, and the nature of housing required by workers. On the other hand, estimates of water needs that were not based on original research generally reported water needs for multiple groups of activities in barrels of water per barrel of oil produced and cited someone else’s work as the source for this number. We excluded several estimates that seemed unlikely. For example, we eliminated a water estimate for power generation that i |
1,521 | ncluded building a nuclear power plant and water estimates for population growth where it was assumed that people would decrease their water consumption by over 50 percent. We also excluded technologies developed prior to 1980 that are dissimilar to technologies being considered by oil shale companies today. We checked mathematical calculations and reviewed power requirements and the reasonableness of associated water needs. For power estimates that did not include associated water needs, we converted power |
1,522 | needs into water needs using 480 gallons per megawatt hour of electricity produced by coal-fired, wet recirculating thermoelectric plants and 180 gallons per megawatt hour of electricity produced by gas-powered, combined cycle, wet recirculating thermoelectric plants. Air-cooled systems consume almost no water for cooling. Where appropriate, we also estimated shale oil recoveries based the company’s estimated oil shale resources and estimated water needs for rinsing retorted zones based on anticipated chan |
1,523 | ges to the reservoir. We converted water requirements to barrels of water needed per barrel of oil produced. For those studies with water needs that met our criteria, we tabulated water needs for each group of activities for both in-situ production and mining with a surface retort. The results appear in tables 8 and 9. We estimated the total range of water needs for in-situ development by summing the minimum estimates for each group of activities and by summing the maximum estimates for the various groups o |
1,524 | f activities. We did the same for mining with a surface retort. We also calculated the average water needs for each group of activities. To determine the extent to which water is likely to be available for commercial oil shale development and its source, we compared the total needs of an oil shale industry of various sizes to the amount of surface water and groundwater that the states of Colorado and Utah estimate to be physically and legally available, in light of future municipal and industrial demand. We |
1,525 | selected the sizes of an oil shale industry based on input from industry and DOE. These are hypothetical sizes, and we do not imply that an oil shale industry will grow to these sizes. The smallest size we selected for an in-situ industry, 500,000 barrels of oil per day, is a likely size identified by an oil shale company based on experience with the development of the Canadian tar sands. The largest size of 2,500,000 barrels of oil per day is based on DOE projections. We based our smallest size of a minin |
1,526 | g industry, 25,000 barrels of oil per day, on one-half of the smallest scenario identified by URS in their work on water needs contracted by the state of Colorado. We based our largest size of a mining industry, 150,000 barrels of oil per day, on three projects each of 50,000 barrels of oil per day, which is a commonly cited size for a commercial oil shale mining operation. We reviewed and analyzed two detailed water studies commissioned by the state of Colorado to determine how much water is available in C |
1,527 | olorado, where it was available, and to what extent demands will be placed on this water in the future. We also reviewed a report prepared for the Colorado Water Conservation Board on future water availability in the Colorado River. These studies were identified by water experts at various Colorado state water agencies as the most updated information on Colorado’s water supply and demand. To determine the available water supply and the potential future demand in the Uintah Basin, we reviewed and analyzed da |
1,528 | ta in documents prepared by the Utah Division of Water Resources. We also examined data on water rights provided by the Utah Division of Water Rights and examined data collected by Western Resource Advocates on oil shale water rights in Colorado. In addition to reviewing these documents, we interviewed water experts at the Bureau of Reclamation, USGS, Utah Division of Water Rights, Utah Division of Water Resources, Utah Division of Water Quality, Colorado Division of Natural Resources, Colorado Division of |
1,529 | Water Resources, Colorado River Water Conservation District, the Utah and Colorado State Demographers, and municipal officials in the oil shale resource area. To identify federally funded research efforts to address the impacts of commercial oil shale development on water resources, we interviewed officials and reviewed information from offices or agencies within DOE and the Department of the Interior (Interior). Within DOE, these offices were the Office of Naval Petroleum and Oil Shale Reserves, the Nation |
1,530 | al Energy Technology Laboratory, and other DOE offices with jurisdiction over various national laboratories. Officials at these offices identified the Idaho National Laboratory and the Los Alamos National Laboratory as sponsoring or performing water-related oil shale research. In addition, they identified experts at Argonne National Laboratory who worked on the PEIS for BLM or who wrote reports on water and oil shale issues. Within Interior, we contacted officials with BLM and the USGS. We asked officials a |
1,531 | t all of the federal agencies and offices that were sponsoring federal research to provide details on research that was water-related and to provide costs for the water-related portions of these research projects. For some projects, based on the nature of the research, we counted the entire award as water-related. We identified 15 water-related oil shale research projects. A detailed description of these projects is in appendix II. To obtain additional details on the work performed under these research proj |
1,532 | ects, we interviewed officials with all the sponsoring organizations and the performing organizations, including the Colorado School of Mines, University of Utah, Utah Geological Survey, Idaho National Laboratory, Los Alamos National Laboratory, Argonne National Laboratory, and the USGS. To assess additional needs for research and to evaluate any gaps between research needs and the current research projects, we interviewed officials with 14 organizations and four experts that are authors of studies or repor |
1,533 | ts we used in our analyses and that are recognized as having extensive knowledge of oil shale and water issues. The names of the 14 organizations appear in table 10. These discussions involved officials with all the federal offices either sponsoring or performing water-related oil shale research and state agencies involved in regulating water resources. Appendix II: Descriptions of Federally Funded Water-Related Oil Shale Research $4,838,097 The University of Utah received four separate awards, each coverin |
1,534 | g a broad array of oil shale research over multiple years. The awards included some water-related work. Examples of projects include (1) Meeting Data Needs to Perform a Water Impact Assessment for Oil Shale Development in the Uintah and Piceance Basins, (2) Effect of Oil Shale Processing on Water Compositions, and () New Approaches to Treat Produced Water and Perform Water Availability Impact Assessments for Oil Shale Development. In addition to the individuals named above, Dan Haas (Assistant Director), Ro |
1,535 | n Belak, Laura Hook, and Randy Jones made major contributions to this report. Other individuals who made significant contributions were Charles Bausell, Virginia Chanley, Alison O’Neill, Madhav Panwar, and Barbara Timmerman. |
1,536 | The federal government began with a public debt of about $78 million in 1789. Since then, the Congress has attempted to control the size of the debt by imposing ceilings on the amount of Treasury securities that could be outstanding. In February 1941, the Congress set an overall ceiling of $65 billion on all types of Treasury securities that could be outstanding at any one time. This ceiling was raised several times between February 1941 and June 1946 when a ceiling of $275 billion was set and remained in e |
1,537 | ffect until August 1954. At that time, the Congress imposed the first temporary debt ceiling which added $6 billion to the $275 billion permanent ceiling. Since that time, the Congress has enacted numerous temporary and permanent increases in the debt ceiling. Although most of this debt is held by the public, about one fourth of it or $1.325 trillion, as of October 31, 1995, is issued to federal trust funds, such as the Social Security funds, the Civil Service fund, and the G-Fund. The Secretary of the Trea |
1,538 | sury has several responsibilities relating to the federal government’s financial management operations. These include paying the government’s obligations and investing trust fund receipts not needed for current benefits and expenses. The Congress has generally provided the Secretary with the ability to issue the necessary securities to the trust funds for investment purposes and to borrow the necessary funds from the public to pay government obligations. Under normal circumstances, the debt ceiling is not a |
1,539 | n impediment in carrying out these responsibilities. Treasury is notified by the appropriate agency (such as the Office of Personnel Management for the Civil Service fund) of the amount that should be invested (or reinvested) and Treasury makes the investment. In some cases, the actual security that Treasury should purchase may also be specified. These securities count against the debt ceiling. Consequently, if trust fund receipts are not invested, an increase in the debt subject to the debt ceiling does no |
1,540 | t occur. When Treasury is unable to borrow as a result of reaching the debt ceiling, the Secretary is unable to fully discharge his financial management responsibilities using the normal methods. On various occasions over the years, normal government financing has been disrupted because Treasury had borrowed up to or near the debt ceiling and legislation to increase the debt ceiling had not yet been enacted. These situations are commonly referred to as debt ceiling crises. In 1985 the government experienced |
1,541 | a debt ceiling crisis from September 3 through December 11. During that period, Treasury took several actions that were similar to those discussed in this report. For example, Treasury redeemed Treasury securities held by the Civil Service fund earlier than normal in order to borrow sufficient cash from the public to meet the fund’s benefit payments and did not invest some trust fund receipts. In 1986 and 1987, following Treasury’s experiences during prior debt ceiling crises, the Congress provided to the |
1,542 | Secretary of the Treasury statutory authority to use the Civil Service fund and the G-Fund to assist Treasury in managing its financial operations during a debt ceiling crisis. The following are statutory authorities provided to the Secretary of Treasury that are pertinent to the 1995-1996 debt ceiling crisis and the actions discussed in this report. 1. Redemption of securities held by the Civil Service fund. In subsection (k) of 5 U.S.C. 8348, the Congress authorizes the Secretary of the Treasury to redeem |
1,543 | securities or other invested assets of the Civil Service fund before maturity to prevent the amount of public debt from exceeding the debt ceiling. 5 U.S.C. 8348(k) also provides that, before exercising the authority to redeem securities of the Civil Service fund, the Secretary must first determine that a “debt issuance suspension period” exists. 5 U.S.C. 8348(j) also defines a debt issuance suspension period as any period for which the Secretary has determined that obligations of the United States may not |
1,544 | be issued without exceeding the debt ceiling. “the term ‘debt issuance suspension period’ means any period for which the Secretary of the Treasury determines for purposes of this subsection that the issuance of obligations of the United States may not be made without exceeding the public debt limit.” 2. Suspension of Civil Service fund investments. In subsection (j) of 5 U.S.C. 8348, the Congress authorizes the Secretary of the Treasury to suspend additional investment of amounts in the Civil Service fund |
1,545 | if such investment cannot be made without causing the amount of public debt to exceed the debt ceiling. This subsection of the statute instructs the Secretary on how to make the Civil Service fund whole after the debt issuance suspension period has ended. 3. Suspension of G-Fund investments. In subsection (g) of 5 U.S.C. 8438, the Congress authorized the Secretary of the Treasury to suspend the issuance of additional amounts of obligations of the United States to the G-Fund if such issuance cannot be made w |
1,546 | ithout causing the amount of public debt to exceed the debt ceiling. The subsection contains instructions on how the Secretary is to make the G-Fund whole after the debt ceiling crisis has ended. 4. Issuance of securities not counted toward the debt ceiling. On February 8, 1996, the Congress provided Treasury with the authority (Public Law 104-103) to issue securities in an amount equal to March 1996 social security payments. This statute provided that the securities issued under its provisions were not to |
1,547 | be counted against the debt ceiling until March 15, 1996, which was later extended to March 30, 1996. On March 12, 1996, the Congress enacted Public Law 104-115 which exempted government trust fund investments and reinvestments from the debt ceiling until March 30, 1996. We have previously reported on aspects of Treasury’s actions during the 1985 and other debt ceiling crises. Those reports are: 1. A New Approach to the Public Debt Legislation Should Be Considered (FGMSD-79-58, September 7, 1979). 2. Opinio |
1,548 | n on the legality of the plan of the Secretary of the Treasury to disinvest the Social Security and other trust funds on November 1, 1985, to permit payments to beneficiaries of these funds (B-221077.2, December 5, 1985). 3. Civil Service Fund: Improved Controls Needed Over Investments (GAO/AFMD-87-17, May 7, 1987). 4. Debt Ceiling Options (GAO/AIMD-96-20R, December 7, 1995). 5. Social Security Trust Funds (GAO/AIMD-96-30R, December 12, 1995). 6. Debt Ceiling Limitations and Treasury Actions (GAO/AIMD-96-38 |
1,549 | R, January 26, 1996). 7. Information on Debt Ceiling Limitations and Increases (GAO/AIMD-96-49R, February 23, 1996). • develop a chronology of significant events relating to the 1995-1996 debt • evaluate the actions taken during the 1995-1996 debt ceiling crisis in relation to the normal policies and procedures Treasury uses for federal trust fund investments and redemptions, and • analyze the financial aspects of the departures from the normal policies and procedures and assess their legal basis. To develo |
1,550 | p a chronology of the significant events involving the 1995-1996 debt ceiling crisis, we obtained and reviewed applicable documents. We also discussed Treasury’s actions during the crisis with Treasury officials. To evaluate the actions taken during the 1995-1996 debt ceiling crisis in relation to the normal policies and procedures Treasury uses for federal trust fund investments, we obtained an overview of the procedures used. For the 15 selected trust funds, which are identified in chapter 3, we examined |
1,551 | the significant transactions that affected the trust funds between November 1, 1995, and March 31, 1996. In cases where the procedures were not followed, we obtained documentation and other information to help understand the basis and impact of the alternative procedures that were used. Although Treasury maintains accounts for over 150 different trust funds, we selected for review those with investments in Treasury securities that exceeded $8 billion on November 1, 1995. In addition, we selected the Exchang |
1,552 | e Stabilization Fund because Treasury used this fund in previous debt ceiling crises to help raise cash and stay under the debt ceiling. The funds we examined accounted for over 93 percent of the total securities held by these 150 trust funds as of October 31, 1995, and March 31, 1996. To analyze the financial aspects of Treasury’s departures from its normal polices and procedures, we (1) reviewed the methodologies Treasury developed to minimize the impact of such departures on the federal trust funds, (2) |
1,553 | quantified the impact of the departures, and (3) assessed whether any interest losses were properly restored. To assess the legal basis of Treasury’s departures from its normal policies and procedures, we identified the applicable legal authorities and determined how Treasury applied them during the debt ceiling crisis. Our evaluation included those authorities relating to (1) issuing and redeeming Treasury securities during a debt issuance suspension period and restoring losses after a debt ceiling crisis |
1,554 | has ended, (2) the ability to exchange Treasury securities held by the Civil Service fund for agency securities held by the FFB, and (3) the use of the Exchange Stabilization Fund during a debt ceiling crisis. We also compiled and analyzed applicable source documents, including executive branch legal opinions, memos, and correspondence. We have provided these documents to the Committees’ staffs. We performed our work between November 9, 1995, and July 1, 1996. Our audit was performed in accordance with gene |
1,555 | rally accepted government auditing standards. We requested oral comments on a draft of this report from the Secretary of the Treasury or his designee. On August 22, 1996, Treasury officials provided us with oral comments that generally agreed with our findings and conclusions. Their views have been incorporated where appropriate. On August 10, 1993, the Congress raised the debt ceiling to $4.9 trillion, which was expected to fund government operations until spring 1995. In early 1995, analysts concluded tha |
1,556 | t the debt ceiling would be reached in October 1995. This set the stage for the 1995-1996 debt ceiling crisis, which was resolved on March 29, 1996, when Congress raised the debt ceiling to $5.5 trillion. The major actions taken by the Congress and the Executive Branch involving the 1995-1996 debt ceiling crisis are shown in table 2.1. Our analysis showed that, during the 1995-1996 debt ceiling crisis, Treasury used its normal investment and redemption procedures to handle the receipts and maturing investme |
1,557 | nts and to redeem Treasury securities for 12 of the 15 trust funds we examined. These 12 trust funds accounted for about 65 percent, or about $871 billion, of the $1.3 trillion in Treasury securities held by the federal trust funds on October 31, 1995. The trust funds included in our analysis are listed in table 3.1. Trust funds which are allowed to invest receipts, such as the Social Security funds, normally invest them in nonmarketable Treasury securities. Under normal conditions, Treasury is notified by |
1,558 | the appropriate agency of the amount that should be invested or reinvested, and Treasury then makes the investment. In some cases, the actual security that Treasury should purchase is also specified. When a trust fund needs to pay benefits and expenses, Treasury is normally notified of the amount and the date that the disbursement is to be made. Depending on the fund, Treasury may also be notified to redeem specific securities. Based on this information, Treasury redeems a fund’s securities. Between Novembe |
1,559 | r 15, 1995, and March 28, 1996, Treasury followed its normal investment and redemption policies for all of the trust funds shown in table 3.1. For example, during this period, Treasury invested about $156.7 billion and redeemed about $115.8 billion of Treasury securities on behalf of the Social Security funds and invested about $7.1 billion and redeemed about $6.8 billion of Treasury securities on behalf of the Military Retirement Fund. The departures from normal investment and redemption procedures involvi |
1,560 | ng the other three trust funds (Civil Service fund, G-Fund, and Exchange Stabilization Fund), which held over $370 billion of Treasury securities on October 31, 1995, or about 28 percent of the Treasury securities held by all federal trust funds at that time, are discussed in chapters 4 and 5. During the 1995-1996 debt ceiling crisis, the Secretary of the Treasury redeemed Treasury securities held by the Civil Service fund and suspended the investment of some Civil Service fund receipts. Also, Treasury exch |
1,561 | anged Treasury securities held by the Civil Service fund for non-Treasury securities held by the FFB. Subsection (k) of 5 U.S.C. 8348 authorizes the Secretary of the Treasury to redeem securities or other invested assets of the Civil Service fund before maturity to prevent the amount of public debt from exceeding the debt ceiling. The statute does not require that early redemptions be made only for the purpose of making Civil Service fund benefit payments. Furthermore, the statute permits the early redempti |
1,562 | ons even if the Civil Service fund has adequate cash balances to cover these payments. During November 1995 and February 1996 the Secretary of the Treasury redeemed about $46 billion of the Civil Service fund’s Treasury securities before they were needed to pay for trust fund benefits and expenses. Table 4.1 shows an example of the use of this procedure during the 1995-1996 debt ceiling crisis. Before redeeming Civil Service fund securities earlier than normal, the Secretary must first determine that a “deb |
1,563 | t issuance suspension period” exists. Such a period is defined as any period for which the Secretary has determined that obligations of the United States may not be issued without exceeding the debt ceiling. The statute authorizing the debt issuance suspension period and its legislative history are silent as to how to determine the length of a debt issuance suspension period. On November 15, 1995, the Secretary declared a 12-month debt issuance suspension period. On February 14, 1996, the Secretary extended |
1,564 | this period from 12 to 14 months. The Secretary, in the November 15, 1995, determination, stated that a debt issuance suspension period existed for a period of 12 months “ased on the information that is available to me today.” A memorandum to the Secretary from Treasury’s General Counsel provided the Secretary a rationale to support his determination. The memorandum noted that based on the actions of the Congress and the President and on public statements by both these parties, there was a significant impa |
1,565 | sse that made it unlikely that a statute raising the debt ceiling could be enacted. Furthermore, the positions of the President and the Congress were so firm that it seemed unlikely that an agreement could be reached before the next election, which was 12 months away. The Secretary extended the debt issuance suspension period by 2 months on February 14, 1996. Treasury’s General Counsel again advised the Secretary concerning the reasons underlying the extension and noted that nothing had changed since Novemb |
1,566 | er to indicate that the impasse was any closer to being resolved. The General Counsel further reasoned that it would take until January 1997 for a newly elected President or a new Congress to be able to enact legislation raising the debt ceiling. On November 15, 1995, the Secretary authorized the redemption of $39.8 billion of the Civil Service fund’s Treasury securities, and on February 14, 1996, authorized the redemption of another $6.4 billion of the fund’s Treasury securities. The total, $46 billion of |
1,567 | authorized redemptions was determined based on (1) the 14-month debt issuance suspension period determination made by the Secretary (November 15, 1995, through January 15, 1997) and (2) the estimated monthly Civil Service fund benefit payments. Treasury considered appropriate factors in determining the amount of Treasury securities to redeem early. About $39.8 billion of these securities were redeemed between November 15 and 30, 1995. Then, in December 1995, Treasury’s cash position improved for a few days, |
1,568 | primarily because of the receipt of quarterly estimated tax payments due in December. This inflow of cash enabled Treasury to reinvest, in late December 1995, about $21.2 billion in securities that had the same terms and conditions as those that were redeemed in November. However, because of Treasury’s deteriorating cash position, these securities were again redeemed by the end of December. Finally, between February 15 and 20, 1996, an additional $6.4 billion in Treasury securities held by the Civil Servic |
1,569 | e fund were redeemed. Subsection (j) of 5 U.S.C. 8348 authorizes the Secretary of the Treasury to suspend additional investment of amounts in the Civil Service fund if such investment cannot be made without causing the amount of public debt to exceed the debt ceiling. Between November 15, 1995, and March 29, 1996, the Civil Service fund had about $20 billion in receipts. In all but one case, Treasury used its normal investment policies to handle the trust fund’s requests to invest these receipts. The except |
1,570 | ion involved the trust fund’s December 31, 1995, receipt from Treasury of a $14 billion semiannual interest payment on the fund’s securities portfolio. The Secretary determined that investing these funds in additional Treasury securities would have caused the public debt to exceed the debt ceiling and, therefore, suspended the investment of these receipts. During the debt ceiling crisis, about $6.3 billion of the Civil Service fund’s uninvested receipts were used to pay for the trust fund’s benefits and exp |
1,571 | enses. Normally, government trust funds that are authorized to invest in Treasury securities do not have uninvested cash—all of a trust fund’s receipts that are not needed to pay for benefits and expenses are invested. In the case of the Civil Service fund, when a redemption is necessary, Treasury’s stated policy is to redeem the securities with the shortest maturity first. Should a group of securities have the same maturity date, but different interest rates, the securities with the lowest interest rate ar |
1,572 | e redeemed first. During previous debt ceiling crises, Treasury’s actions resulted in uninvested cash. The uninvested cash not only required restoring lost investment interest but also affected the normal method Treasury uses to determine securities to redeem to pay for trust fund benefits and expenses. Accordingly, in 1989, Treasury developed policies and procedures for determining when uninvested trust fund cash should be used to pay trust fund benefits and expenses and used these policies during the 1995 |
1,573 | -1996 debt ceiling crisis. Overall, Treasury’s policy continued to be to redeem the securities with the lowest interest rate first. However, in making this determination, uninvested cash is treated as though it had been invested in Treasury securities. These procedures are presented in table 4.2. The following illustrates how this policy was implemented. On January 2, 1996, Treasury needed about $2.6 billion to pay fund benefits and expenses for the Civil Service fund. To make these payments, it redeemed or |
1,574 | used • $43 million of the fund’s Treasury securities which carried an interest rate of 5-7/8 percent and matured on June 30, 1996; • $815 million of the fund’s Treasury securities which carried an interest rate of 6 percent and matured on June 30, 1996 (these securities were redeemed first since the $815 million had been invested prior to December 31, 1995); and • $1.7 billion of uninvested cash since the uninvested cash, if normal procedures had been followed, would have been invested on December 31, 1995 |
1,575 | , in 6 percent securities maturing on June 30, 1996. On February 14, 1996, about $8.6 billion in Treasury securities held by the Civil Service fund were exchanged for agency securities held by FFB. FFBused the Treasury securities it received in this exchange to repay some of its borrowings from Treasury. Since the Treasury securities provided by the Civil Service fund had counted against the debt ceiling, reducing these borrowings resulted in a corresponding reduction in the public debt subject to the debt |
1,576 | ceiling. Thus, Treasury could borrow additional cash from the public. The decision to exchange Treasury securities held by the Civil Service fund for non-Treasury securities held by FFB required Treasury to determine (1) which non-Treasury securities were eligible for the exchange and (2) how to value the securities so that the exchange was fair to both the Civil Service fund and FFB. Treasury’s objective was to ensure that the securities that were exchanged were of equal value and that the Civil Service fu |
1,577 | nd would not incur any long-term loss. Regarding the first issue, the law governing the Civil Service fund does not specifically identify which securities issued by an agency can be purchased. However, the laws authorizing the Postal Service and the Tennessee Valley Authority to issue securities state that these securities are lawful investments of the federal trust funds (39 U.S.C. 2005(d)(3) and 16 U.S.C. 831n-4(d)). Regarding the second issue, the Treasury securities held by the Civil Service fund and th |
1,578 | e non-Treasury securities held by FFB had different terms and conditions; thus complicating the task of valuing the securities. For example, most of the Treasury securities held by the Civil Service fund mature on June 30 of a given year and can be redeemed at par when needed to pay benefits and expenses. None of the agency securities held by FFB, and selected by Treasury for the exchange transaction, matured on June 30 and, if redeemed before maturity, the redemption price would be based on market interest |
1,579 | rates. Because the effects of these differences can be significant, a methodology was needed to determine the proper valuation for the securities that would be exchanged. Therefore, Treasury used a generally accepted methodology to compute the value of each portfolio. Examples of factors used in this methodology include (1) the current market rates for outstanding Treasury securities at the time of the exchange, (2) the probability of changing interest rates, (3) the probability of the agency paying off th |
1,580 | e debt early, and (4) the premium that the market would provide to a security that could be redeemed at par regardless of the market interest rates. Treasury obtained the opinion of an independent third party to determine whether its valuations were accurate. Our review of the consultant’s report showed that the consultant (1) identified the characteristics of each security to be exchanged, (2) reviewed the pricing methodology to be used, (3) calculated the value of each security based on the pricing method |
1,581 | ology, and (4) reviewed the terms and conditions of the exchange agreement. The consultant concluded that the exchange was fair. Due to the complexity of the consultant’s computations and the large number of securities exchanged, we did not independently verify the consultant’s conclusion. The factors included in Treasury’s methodology and the consultant’s analysis were appropriate for assessing the exchange. Treasury’s actions during the 1995-1996 debt ceiling crisis involving the Civil Service fund were i |
1,582 | n accordance with statutory authority provided by the Congress and the administrative policies and procedures established by Treasury. These actions helped the government to avoid default on its obligations and to stay within the debt ceiling. Specifically, we conclude the following: • Based on the information available to the Secretary when the November 15, 1995, and February 14, 1996, debt issuance suspension period determinations were made, the Secretary’s determinations were not unreasonable. • Treasury |
1,583 | considered appropriate factors in determining the amount of Treasury securities to redeem early. • The Secretary acted within the authorities provided by law when suspending the investment of Civil Service fund receipts. • Treasury’s policies and procedures regarding the uninvested funds are designed primarily to facilitate the restoration of fund losses when Treasury does not follow its normal investment and redemption policies and procedures. They also provide an adequate basis for considering the uninve |
1,584 | sted receipts in determining the securities to be redeemed to pay Civil Service fund benefits and expenses during the debt ceiling crisis. • The agency securities used in the exchange between the Civil Service fund and FFB were lawful investments for the Civil Service fund. In addition, by having an independent verification of the value of the exchanged securities, Treasury helped to ensure that both the Civil Service fund and FFB were treated equitably in the exchange. In addition to the actions involving |
1,585 | the Civil Service fund, during the 1995-1996 debt ceiling crisis, the Secretary of the Treasury (1) suspended the investment of G-Fund receipts and (2) did not reinvest some of the Exchange Stabilization Fund’s maturing securities. Also, the Congress authorized Treasury to issue selected securities that were temporarily exempted from being counted against the debt ceiling. These actions also assisted Treasury in staying under the debt ceiling. Subsection (g) of 5 U.S.C. 8438 authorizes the Secretary of the |
1,586 | Treasury to suspend the issuance of additional amounts of obligations of the United States to the G-Fund if such issuance cannot be made without causing the amount of public debt to exceed the debt ceiling. Each day, between November 15, 1995, and March 18, 1996, Treasury determined the amount of funds that the G-Fund would be allowed to invest in Treasury securities and suspended the investment of G-Fund receipts that would have resulted in exceeding the debt ceiling. On November 15, 1995, when the Secreta |
1,587 | ry determined a debt issuance suspension period, the G-Fund held about $21.6 billion of Treasury securities maturing on that day. In order to meet its cash needs, Treasury did not reinvest about $18 billion of these securities. Until March 19, 1996, the amount of the G-Fund’s receipts that Treasury invested changed daily depending on the amount of the government’s outstanding debt. Although Treasury can accurately predict the result of some of these factors affecting the outstanding debt, the result of othe |
1,588 | rs cannot be precisely determined until they occur. For example, the amount of securities that Treasury will issue to the public from an auction can be determined some days in advance because Treasury can control the amount that will actually be issued. On the other hand, the amount of savings bonds that will be issued and of securities that will be issued to, or redeemed by, various government trust funds are difficult to predict. Because of these difficulties, Treasury needed a way to ensure that the gove |
1,589 | rnment’s trust fund activities did not cause the debt ceiling to be exceeded and also to maintain normal trust fund investment and redemption policies. To do this, each day during the debt ceiling crisis, Treasury • calculated the amount of public debt subject to the debt ceiling, excluding the funds that the G-Fund would normally invest; • determined the amount of G-Fund receipts that could safely be invested without exceeding the debt ceiling and invested this amount in Treasury securities; and • suspende |
1,590 | d investment of the G-Fund’s remaining funds. For example, on January 17, 1996, excluding G-Fund transactions, Treasury issued about $17 billion and redeemed about $11.4 billion of securities that counted against the debt ceiling. Since Treasury had been at the debt ceiling the previous day, Treasury could not invest the entire amount ($21.8 billion) that the G-Fund had requested without exceeding the debt ceiling. As a result, the $5.6 billion difference was added to the amount of uninvested G-Fund receipt |
1,591 | s and raised the amount of uninvested funds for the G-Fund to $7.2 billion on that date. Interest on the uninvested funds was not paid until the debt ceiling crisis ended. On several occasions between February 21 and March 12, 1996, Treasury did not reinvest some of the maturing securities held by the Exchange Stabilization Fund. Because the Fund’s securities are considered part of the government’s outstanding debt subject to the debt ceiling, when the Secretary does not reinvest the Fund’s maturing securit |
1,592 | ies, the government’s outstanding debt is reduced. The purpose of the Exchange Stabilization Fund is to help provide a stable system of monetary exchange rates. The law establishing the Fund authorizes the Secretary to invest Fund balances not needed for program purposes in obligations of the federal government. This law also gives the Secretary the sole discretion for determining when, and if, the excess funds will be invested. During previous debt ceiling crises, Treasury exercised the option of not reinv |
1,593 | esting the Fund’s maturing Treasury securities, which enabled Treasury to raise additional cash and helped the government stay within the debt ceiling limitation. In other actions to stay within the debt ceiling, the Congress passed legislation allowing Treasury to issue some Treasury securities that were temporarily exempted from being counted against the debt ceiling. During January 1996, Treasury’s cash position continued to deteriorate. The Secretary notified the Congress that, unless the debt ceiling w |
1,594 | as raised before the end of February 1996, Social Security and other benefit payments could not be made in March 1996. Under normal procedures, monthly Social Security benefits are paid by direct deposit on the third day of each month. Because checks take a period of time to clear, Treasury only redeems securities equal to the amount of benefits paid by direct deposit on this date. The securities necessary to pay the benefits made by check are redeemed on the third and fourth business day after the payments |
1,595 | are made. This sequencing is designed to allow the fund to earn interest during the average period that benefit checks are outstanding but not cashed (the so-called “float period”). For Social Security payments, the check float period is about 3.6 days. According to Treasury officials, they may need to raise the actual cash needed to pay these benefits several days before the payments are made since the check float is an average. For example, some checks may clear the next business day while others may cle |
1,596 | ar several days after the securities are redeemed. Under normal conditions, this is not a problem since Treasury is free to issue the securities to raise the necessary cash without worrying about when the trust fund securities will be redeemed. To ensure that these benefits would be paid on time, on February 8, 1996, the Congress provided Treasury with the authority (Public Law 104-103) to issue securities in an amount equal to the March 1996 Social Security payments. Further, this statute provided that the |
1,597 | securities issued under its provisions were not to be counted against the debt ceiling until March 15, 1996, which was later extended to March 30, 1996. The special legislation did not create any long-term borrowing authority for Treasury since it only allowed Treasury to issue securities that, in effect, would be redeemed in March 1996. However, it allowed Treasury to raise significant amounts of cash. This occurred because March 15, 1996—the date initially established in the special legislation for which |
1,598 | this debt would be counted against the debt ceiling—was later than the date that most of the securities would have been redeemed from the trust fund under normal procedures. On February 23, 1996, Treasury issued these securities. Following normal redemption policies, Treasury redeemed about $29 billion of Treasury securities from the Social Security fund for the March benefit payments. Since the majority of the Social Security fund payments are made at the beginning of the month, by March 7, 1996, Treasury |
1,599 | had redeemed about $28.3 billion of the trust fund’s Treasury securities. This lowered the amount of debt subject to the limit, and Treasury was able to issue securities to the public for cash or invest trust funds receipts—as long as they were issued before March 15, 1996. Therefore, Treasury could raise an additional $28.3 billion in cash because of the difference in timing between when the securities could be issued (March 15, 1996) and when they were redeemed to pay fund benefits and expenses. Accordin |
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