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Extraordinary Measures Start: No SLGS Suspension

Treasury Secretary Yellen announced the U.S. had reached its statutory debt limit and would implement extraordinary measures. Notably absent— any mention of SLGS suspension.

US Treasury Building in Washington DC

Treasury Secretary Janet Yellen (D) announced on Friday afternoon that the U.S. had reached its statutory debt limit and would need to start extraordinary measures on January 19, 2023. The Treasury Department uses extraordinary measures “to prevent the United States from defaulting on its obligations as Congress deliberate[s] on increasing the debt limit.” Historically, one such measure has been the suspension of sales of new State and Local Government Series (“SLGS”) securities. Notably, this afternoon’s announcement from Secretary Yellen did not include any mention of a suspension for SLGS.

SLGS were created at Congressional request in 1972 to help states and local governments comply with tax rules that restrict the yield on the investment of proceeds of tax-exempt (and now certain other tax-advantaged) state or local bonds. Over the years, the SLGS program has been refined and revised to make it the preferred investment vehicle for proceeds of tax-exempt bonds.

The Bureau of Fiscal Services (BFS), which manages the SLGS program, sent the following advisory out to its issuer clients shortly after the Yellen announcement:

Treasury has announced to Congress that the statutory debt limit may be reached as soon as next week.  We want to inform you that the SLGS Window will not close at that time. Since this is not the standard practice, we wanted to announce this as soon as possible. As of right now, business will continue as normal.  Any updates will be announced as we become aware of them.

BFS email sent January 14, 2023

The omission of SLGS sale suspension from the list of extraordinary measures is a welcomed change from past measures for tax-exempt municipal market participants. It also follows a 2014 NABL request to Treasury and BFS in response to prior debt ceiling debates.

While it is difficult to precisely pinpoint x-date, the day on which the U.S. would fully exhaust its authorized borrowing capacity, most economists believe it will be in the summer. Yellen declined to offer a more specific date but did mention that “it is unlikely that cash and extraordinary measures will be exhausted before early June.” NABL will continue to update members as information becomes available.