Treasury May Shift Funds to Avoid Default

Treasury Secretary Paul H. O’Neill is expected to maneuver federal employees’ retirement funds to let the government avoid breaching its borrowing limit later this month, congressional officials said Monday.

The move--which is legal and was used by the Clinton administration in 1995--would let Congress postpone politically painful votes on raising the current $5.95-trillion debt ceiling. President Bush and O’Neill have repeatedly asked Congress to boost the limit by $750 billion by late March or risk an unprecedented federal default.

By delaying a debt-limit vote, Republican leaders could win votes for it by attaching it to popular legislation paying for the war in Afghanistan. Congress is not expected to be ready to pass the bill financing the war until at least April or May.

Though it is legal for the Treasury to maneuver the retirement funds, it could be politically risky, with many lawmakers focused on Enron Corp. and the demise of its employees’ retirement funds.

Many Republicans criticized Robert E. Rubin, who was President Clinton’s Treasury secretary, when he resorted to the same moves during a budget showdown with the GOP-led Congress nearly seven years ago.

Treasury spokeswoman Michele Davis declined to provide specifics when asked about plans to manage the government’s borrowing needs. The plans were described by several congressional sources who spoke on condition of anonymity.

“We are working with Congress to pass an increase in the debt ceiling and we will do whatever it takes to avoid a default should we not get” it, Davis said.

If Congress fails to raise the debt ceiling, O’Neill has the legal power to shift money in retirement funds, invested for federal retirees by the Treasury Department, into non-interest-bearing accounts.

If that money is shifted, it would not count against the federal borrowing limit. That would free up room for Treasury to borrow more money to keep the government running. Eventually, the money--along with all lost interest--would be put back into interest-bearing accounts.