U.S. Running Out of Cash More Quickly; Treasury Now Sees Crunch by Oct. 17; No Deal to Fund Government in Sight

Updated September 25, 2013, 7:35 p.m. ET

U.S. Running Out of Cash More Quickly

Treasury Now Sees Crunch by Oct. 17; No Deal to Fund Government in Sight

DAMIAN PALETTA and KRISTINA PETERSON

WASHINGTON—The government is closer to running out of money to pay its bills than previously thought, the Treasury Department warned Wednesday, clarifying the fiscal deadlines confronting Congress amid continued disarray on Capitol Hill. Treasury Secretary Jacob Lew said the government would be left with just $30 billion cash on hand “no later” than Oct. 17, and the Congressional Budget Office predicted these funds would be used up between Oct. 22 and Oct. 31 if legislation isn’t enacted to raise the ceiling on government borrowing.That little cash could make it difficult, if not impossible, for the government to pay the roughly $55 billion in Social Security, Medicare and military payments due Nov. 1.

Lawmakers on Wednesday cast about for options to keep the government funded beyond Oct. 1, a separate deadline that is offering a taste of what a debt-ceiling fight might look like later in October. Democrats and Republicans remain far apart on how to avoid a government shutdown, with no path to a deal in sight.

Unlike the previous budget battles that have consumed the federal government since 2011, there appear to be no back-room negotiations aimed at crafting a comprehensive deal that might offer a respite, or even a small deal to get past the looming deadlines.

“I think we’ve got this false sense of security,” Sen. Mark Warner (D., Va.) said in an interview. “This time, the wolf really could be at the door.”

After a 21-hour floor speech by Sen. Ted Cruz (R., Texas) decrying the White House’s health-care law, the Senate agreed unanimously to proceed with a multiday process to debate legislation to fund the government beyond Sept. 30, the end of the current fiscal year.

The Senate is expected to pass a bill later this week or this weekend that funds the government through mid-November and strips out House-passed language that would defund the health-care law, a priority of Mr. Cruz and some Republicans.

After the Senate acts, House Republicans are considering various options to alter the bill yet again. These include a one-year delay in the health-care law’s individual mandate or a repeal of the law’s tax on medical devices, which has drawn some Democratic support in the past. It is unlikely Democrats would accept these proposals in this context.

House Republicans are also considering prohibiting lawmakers and certain White House staff from receiving federal contributions to offset some of their health-care premiums, a senior House GOP aide said.

House GOP leaders are expected to discuss the options with their conference on Thursday morning, but may not settle on a plan immediately. If they add one or more of these conditions to any Senate-passed bill, the Senate would be forced to vote at least one more time before any fix could be finalized.

The back-and-forth on the short-term funding measure masks deeper disagreements on how to address the government’s $16.7 trillion borrowing limit. The government spends more money than it brings in through revenue, and it funds this deficit by issuing debt.

It can only borrow money up to a certain limit, however, and this ceiling can only be raised by Congress. If the government can’t borrow more money, Mr. Lew warned Wednesday, it would eventually “be impossible for the United States of America to meet all of its obligations for the first time in our history.”

The White House has said Congress should raise the debt ceiling without conditions and has refused to negotiate with lawmakers about how to do it.

House Speaker John Boehner (R., Ohio) has promised a “whale of a fight” on the issue. House Republicans are considering a plan that would attach conservative priorities to a debt-ceiling increase, such as changes or a delay to the health-care law, new rules for Medicare and provisions that would lower tax rates.

House Budget Committee Chairman Paul Ryan (R., Wis.) said Republicans are hoping to engage the White House in some kind of deficit-reduction agreement that focuses on policies lawmakers believe will promote economic growth. “We need a down payment on the debt,” he said in an interview.

How the debt-ceiling fight plays out depends in part on how or whether Congress agrees to fund the government. Some lawmakers said resistance within the GOP to the strategy of pushing to defund the health law could take some of the steam out of the issue when attention turns to the debt ceiling.

“I hope our central focus will be on dealing with our longer-term fiscal issues,” said Sen. Bob Corker (R., Tenn.).

The White House and Democratic lawmakers, meanwhile, are pre-emptively blaming Republicans for any fallout from not raising the debt ceiling.

“What you’re seeing is people who actually believe that it’s a legitimate tactic to blow up the country in order to achieve a goal, which is to get rid of Obamacare,” said Rep. Peter Welch (D., Vt.), who called it “pretty wild behavior.”

The Treasury Department hasn’t said how it would respond if the debt ceiling isn’t raised. Many investors say they expect the government would continue paying interest on government debt to avoid a sovereign default. But the Treasury has said prioritizing payments is nearly impossible, given the complexities of the federal ledger.

The White House would face difficult political decisions as well, such as whether to make interest payments to bondholders while holding back on Social Security payments, for example.

The Bipartisan Policy Center, a group founded by lawmakers from both parties to forge consensus, has estimated that the government would be unable to pay 32% of its bills in the first month if the debt ceiling isn’t raised in time.

Congress has raised or suspended the debt ceiling five times during President Barack Obama’s tenure. Among those instances, the White House and Republicans brokered an agreement after a bitter debate in August 2011 that put spending restraints in place through 2021. And early this year, Congress agreed to suspend the debt ceiling for several months in exchange for an agreement that both the House and Senate would pass budget resolutions.

The suspended debt ceiling expired in May, and the Treasury has been using emergency steps since then to buy itself more time. Treasury had estimated that by mid-October it would have $50 billion remaining to pay government bills, but it lowered that estimate on Wednesday.