2013 SLGS Forum – August 8, 2013

1. Role of State and Local Government Securities and Other Activity in U.S. Treasury Cash and Debt Management 2013 SLGS Forum – August 8, 2013

2. Office of Fiscal Projections - Mission Essential Functions • Daily Cash Flow and Debt Projections: • Used by Treasury’s debt managers to size and time the issuance of Marketable Securities • To track Federal debt outstanding relative to the statuary limitation • Portfolio Management: Oversee the management of Treasury’s daily cash position, including investment of excess cash balances • Budget /Cash oversight: Continually review receipts and outlays to highlight emerging trends Office of Fiscal Projections

3. Office of Fiscal Projections Three Forecasting Tracks • Tax Receipts • Forecasts and tracks all tax inflows to the Federal government • Typical composition of Tax Flows (Withheld, Non-Withheld, Corporate, Other Taxes) • Government Outlays • Forecasts and tracks expenditures of the government • Major Outlay categories (Social Security, Defense, Health and Human Services, and Interest on Debt) • Debt/Other Cash • Forecast and tracks the outstanding debt of the United States as well as cash flows of all other categories • Major Debt categories (Marketable Borrowing, Government Account Series, Other Non-Marketable Government Series) Office of Fiscal Projections

4. Budget Projections • Three executive branch entities (Troika) are responsible for identifying an Administration’s economic and budget issues: • Office of Management and Budget • Council of Economic Advisors • Department of the Treasury • The Troika develops the economic assumptions underlying an administration’s budget proposals • Using the economic assumptions developed by the Troika: • Treasury produces the Administration’s tax estimates • Each government agency is responsible for producing outlay (expenditure) estimates • Semi-annually, the administration issues updated budget projections Office of Fiscal Projections

5. Fiscal Flows 2012 Total Receipts Total Outlays $3.5 Trillion $2.4 Trillion *SLGS Issuance: $132 billion Redemptions: $125 billion Office of Fiscal Projections

6. Borrowing and Debt 2012 Office of Fiscal Projections

7. Office of Fiscal Projections

8. Forecasting SLGS • Near term forecast based upon reported issuances and redemptions adjusted for recent growth trends and relevant information • Longer term forecast based on longer view of historical trends • Highly unpredictable over long term • *Heavy reliance on advanced reporting for the near term Office of Fiscal Projections

9. “It’s tough to make predictions, especially about the future!” Yogi Berra New York Yankees Office of Fiscal Projections

10. Cash Balance Management • Treasury does not control the timing of program and agency operations, seasonal flows and operations calendars give rise to periodic shortfall as well as surpluses in the government’s cash balances. • Shortfalls must be covered by additional marketable borrowing • Surpluses present an opportunity to invest funds not immediately needed • The timing of major Federal receipts and outlays has given a distinctive pattern to the monthly variations of cash balances • Most of the principal recurring benefit programs are made at the beginning of the month • There are heavy tax flows around the middle of certain months • The result is a low or even negative (before financing) balance during the first two weeks of the month and higher balances during the 2nd half of the month. • The current coupon issuance pattern generally creates significant mid-month and end-of –month balances

11. Portfolio Management: Historical Cash Management/ Investment Strategy Target Balance: • In normal times, Treasury targets a $5 billion cash balance in the TGA • Normally, cash above the target level is placed in safe investments in order to receive a higher return. • The direct placement portion of Treasury’s Investment Program allowed Treasury to place excess funds with qualified commercial depositaries • Normally, the first $2-$3 billion above the TGA target was invested through direct Placement • Funds may be called or placed on a same day basis if the projected cash balance is above or below the target. • Term Investment program allowed for fixed-term investment • Better return on invested funds than legacy program • Fixed, longer terms of investments • Market bidding for funds • Reverse Repurchase Agreement program developed to offer another investment tool • Better return on invested funds than legacy program • Expanded capacity for Treasury’s investment programs Office of Fiscal Projections

12. Cash Balance Oct 2006 – July 2013 ($’s in billions) Office of Fiscal Projections

13. History of the Debt Limit • The debt limit serves as a ceiling on the total amount that the Treasury may borrow. • Prior to 1917, Congress separately authorized each borrowing by the U.S. Government. • This process became too burdensome During World War I, and so Congress passed the first debt limit statute, in September 1917. • Pursuant to statute, the Treasury is authorized to borrow amounts necessary to meet authorized expenditures, subject to the overall debt limit. • Congress has raised the debt limit dozens of times, including 15 times since 2001. It has been increased from $43 billion in 1940, to its current level of $16.699 trillion.

14. The Statutory Debt Limit • Currently, the debt limit is set at $16.699 trillion. • This debt limit applies to almost all federal borrowing, including: • Securities issued to the public (currently $11.9 trillion); and • Securities issued to government accounts (currently $4.8 trillion). • Increasing the debt limit does not increase the obligations we have as a Nation. • Increasing the debt limit simply permits the Treasury to fund those obligations that Congress has already established.

15. Notification to Congress and Extraordinary Measures • In a May 17 letter to Congress, Secretary Lew provided a detailed description of the extraordinary measures available • Suspending sales of State and Local Government Securities • Determining that a “debt issuance suspension period” (DISP) exists, permitting • the redemption of existing Civil Service Retirement and Disability Fund (CSRDF) and Postal Service Retirement Fund Investments • the suspension of new CSRDF and Postal investments • Suspending reinvestment of the Government Securities Investment Fund (G Fund) • Suspending reinvestment of the Exchange Stabilization Fund (ESF) • These measures have been taken in the past by Treasury Secretaries of both Republican and Democratic administrations.

16. Debt Subject to Limit October 1, 2003 – July 31, 2013 Office of Fiscal Projections

17. How Long Extraordinary Measures Will Last In its July 31 Quarterly Refunding Statement Treasury noted: • that it is impossible to provide a precise estimate at this time • It appears Treasury will have room to continue financing government operations but Congress will need to address this soon after they return after Labor Day. • As forecast factors permit, Treasury will provide additional guidance

18. Treasury Links • US Department of the Treasury • http://www.treasury.gov/Pages/default.aspx • Daily Treasury Statement • http://www.fms.treas.gov/dts/overview.html • Monthly Treasury Statement • http://www.fms.treas.gov/mts/overview.html • Treasury Monthly Statement of Public Debt • http://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm Office of Fiscal Projections