Federal pay, benefits would be at risk in August, group says

Unless the debt ceiling is raised, the federal government sometime in early August would be unable to meet a wide range of spending obligations that include federal salaries and benefits and military active-duty pay, according to an analysis from a public policy group.

The analysis released June 28 by the Bipartisan Policy Center, a group founded by four former U.S. senators, said after that date, the Treasury Department would begin to prioritize payments to stay under the debt limit.

“Based on publicly available data, we have estimated daily cash flows through the end of August 2011,” said Jay Powell, a former undersecretary of the Treasury for finance under President George H. W. Bush who now serves as a visiting scholar with the group. “Our analysis shows that the government will be unable to pay all of its bills on August 3 or sometime soon thereafter.”

The group said that under one example scenario, the Treasury Department could exhaust all August income by paying only six items — interest on existing debt, Medicare, Medicaid, Social Security, unemployment insurance and defense contracts — and have no money left to pay for other things such as veterans’ benefits, tax refunds, military active duty pay and federal salaries and benefits.

“The choices would not be pretty,” said Powell.