Special Message to the Congress Proposing Establishment of a New Public Debt Limit

To the Congress of the United States:

When I took office as President of the United States, the public debt subject to limit was $364.2 billion--only $800 million below the statutory ceiling of $365 billion. Available projections indicated that borrowings needed to provide the Government with minimum cash balances essential for its operations would place the debt subject to limit at or above the legal ceiling by mid-April.

These projections have now been reviewed and updated on the basis of the latest revenue and expenditure flows. They continue to show inadequate leeway under the debt limit to meet all anticipated cash requirements through the middle of April. These facts permit me only one prudent course of action. I must ask the Congress to revise the debt limit before mid-April. The new limit should provide a reasonable margin for contingencies.

President Johnson foresaw the possible need for such action when he stated in his fiscal year 1970 Budget that "It may be necessary... within the next few months to raise the present debt limit."

Continuing high interest rates may add several hundred million dollars to the 1969 expenditures estimated by President Johnson. Other possible increases in outlays, including farm price support payments and a wide variety of past commitments in other programs--such as highways--may be greater than was estimated by the outgoing Administration.

All department and agency heads are now reviewing their programs in a determined effort to reduce costs. But we should not let our hopes for success in this effort deter us from the necessary action on the debt limit. Such cost reductions can have only a minor effect on expenditures in the next month or two, and it is in early March and again in early April that the Treasury will be faced with the heaviest drain on its resources.

Moreover, even if the Budget surpluses for fiscal years 1969 and 1970 were to prove somewhat larger than estimated in the January Budget, the present debt limit would be inadequate for fiscal year 1970. Thus even if an immediate increase in the debt limit could be avoided, an increase cannot be postponed very far into the next fiscal year. My predecessor also noted this fact when he presented his Budget for fiscal year 1970.

The apparent paradox of a need for a higher debt limit in years of anticipated budget surplus is explained mainly by the fact that the fiscal year 1969 and 1970 surpluses reflect substantial surpluses in Government trust funds--projected at 9.4 billion in fiscal year 1969 and $ 10.3 billion in fiscal year 1970. These surpluses in the trust funds provide cash to the Treasury, but only through the medium of investment in special Treasury issues. The consequent increase in such special issues is subject to the debt limit, under present definitions. Hence, the debt subject to limit will rise even though borrowing from the public will decline.

In addition, we must acknowledge the seasonal pattern in Treasury receipts. Net cash requirements prior to the mid-April tax date are regularly very substantial, while after that date the Treasury will be repaying a large amount of debt on a net basis.

While a small, temporary increase in the debt limit might prevent the undue restrictiveness of the present limit in the months immediately ahead, I urge that we now direct our attention to the future and at least through fiscal year 1970.

I believe that the Congress should now enact a debt limit which will serve the needs of our Nation both for the balance of this fiscal year and for the foreseeable future.

In doing so, I also believe that the Congress should take this occasion to redefine the debt subject to limit to bring it into accord with the new unified Budget concept developed by a distinguished Commission that was headed by the present Secretary of the Treasury and included leaders from both Houses of Congress, officials of the previous Administration, and distinguished private citizens. The recommendations of this Commission largely have been adopted in the last two Budget presentations and in the new form of Congressional budget score keeping. These have been major forward steps toward better public understanding of the budget. The concept of the debt limit should also be redefined as suggested in the Commission's report.

Under the unified Budget concept, attention is focused on the total receipts and expenditures of the Federal Government, including the trust funds. The surplus or deficit thus reflects the net of revenue and expenditure transactions between the Federal Government and the public, and the net debt transactions between the Government and the public are thus the relevant basis for a proper understanding of the Federal borrowing requirements. To conform fully with this Budget presentation, only those Federal obligations which are held by the public-all debt except that held by Federally owned agencies and by the trust funds-should be subject to the statutory limit on the public debt. Debt of Federally-owned agencies held by the public would be included as well as direct Treasury debt.

This change would in no way affect the integrity of the trust funds. This Administration recognizes, as the Commission on Budget Concepts emphasized, the firm obligation of the Government to maintain proper, separate accounting for the trust funds. This can and will be done without including obligations held by the trust funds in the total debt subject to the debt limit.

I therefore propose that the Congress establish a new debt limit defined to accord with the unified Budget concept. On this basis, a limit of $300 billion should be adequate to permit efficient and responsible handling of the Government's financing for the foreseeable future. This compares with an outstanding debt on the unified Budget concept of $293.7 billion on January 21, 1969.

On the present public debt limit concept, the debt outstanding on January 21, 1969 was $364.2 billion as compared with the current debt limit of $365 billion. An increase in that limit to approximately $382 billion would correspond in the next fiscal year to the $300 billion limit I am proposing on the unified budget basis.

RICHARD NIXON

The White House

February 24, 1969