The Volokh Conspiracy
Mostly law professors | Sometimes contrarian | Often libertarian | Always independent
Why The Statutory Debt-Limit Gimmicks Don't Work
They are all looking for elephants in mouseholes, and even the "premium bonds" theory has its flaws.
I've gotten some texts and emails the past few days about various statutory tricks that the President might use to circumvent the debt limit. If it's right that the President has the statutory authority to circumvent the limit, of course, then the whole negotiation process going on right now would be gratuitous.
So far as I can tell, the two big proposed statutory gimmicks are: (1) mint the giant platinum coin (practically infeasible, already rejected by Treasury, and amply dissected elsewhere over many years); and (2) issue "premium bonds," wherein the "face value" for debt limit purposes is low, but the interest rate is high—so they sell for a higher price. Because the premium bonds scheme has been dissected in less detail and has struck some commentators as obviously more plausible, I'll offer a few preliminary thoughts on it below. This is one where I'd like to learn more.
But I'd also like to offer a kind of macro reaction to this class of theories: If any of the statutory gimmick theories were correct, it would suggest that Congress—despite having re-upped the debt limit more than 100 times and having behaved in numerous other ways in numerous other statutes as if the limit really were a binding constraint on the government—also gave the Executive Branch a simple tool (perhaps many tools!) to render the limit a dead letter. The Scalia line has become something of a cliché, but still: It's a lot of elephants for some little (or at best medium) mouseholes. For legal realists, I don't see any of these strategies prevailing in litigation.
I would also find some of the statutory theories much more appealing if applying a somewhat strained statutory reading were necessary to avoid an imminent constitutional violation. In that type of scenario, perhaps the President would have a kind of constitutional avoidance doctrine to support action: Hey, this might not be the best reading of the statute, but it's not an impossible one—and in this one case it's necessary to avoid violating the Constitution.
The problem with that line of thinking is that there isn't really a good reason to suspect that any constitutional violation is imminent. Under-spending isn't necessarily unconstitutional. (No one thinks banal deficiency appropriations are constitutionally required to correct a violation of the Spending Clause.) And, even if you believe the 14th Amendment prevents "default," there isn't a good reason to think default is on the imminent horizon—Treasury can roll the debt over and pay interest with tax revenue. If negotiations over the debt limit fail (now seeming increasingly unlikely), we might encounter all sorts of thorny statutory problems in the weeks to come—the Prompt Payment Act, the Fair Labor Standards Act, the Tucker Act, the Anti-Deficiency Act, and so on. But I don't see looming constitutional ones—and thus no occasion for a strained reading.
Which brings me to premium bonds—a theory that some commentators regard as not strained at all. The statutory debt limit only looks to the "face value" of securities, but Treasury has control over both the "face value" and the interest rate. So the idea is that Treasury can sell bonds with a low "face value" but a really high interest rate—thereby getting a higher price. But, in addition to the macro point above—would the Court really think Congress provided this authority?—there are some more granular legal problems with it too. (I say all this with the caveat that I am a lawyer and not a financial engineer.)
First, the regulations. It seems uncontested that the relevant regulations contemplate Treasury issuing only notes and bonds at par—$100 price for $100 bond—or at discount, but not a premium. Matt Levine says this is not a problem because the regulations also say that Treasury "[r]eserve[s] the right to modify the terms and conditions of new securities and to depart from the customary pattern of securities offerings at any time." If only it were this easy! The rulemaking provisions of the Administrative Procedure Act apply to the process of "formulating, amending, or repealing" a rule. Sure, sometimes agencies will write a rule that includes something like Treasury's proviso above—hey, here's a rule, but we can waive any part of the rule any time. Including that sentence does not make it so. If exercised—and especially if exercised in a substantial way—this cries out for challenge as an attempt to circumvent both the APA and the Accardi doctrine (whereby an agency must follow its own regulations).
Second, the statute. I do not think it's crazy to read the statute as authorizing premium bonds, but it's also not obvious that this is the best reading. One issue is whether the authorizing legislation (which looks to "face value" and gives Treasury authority to, e.g., "issue bonds of the Government for the amounts borrowed") requires a certain kind of fit between "amounts borrowed" and "face value." Another issue is practice: Has Treasury always read and applied these provisions in that way—i.e., only offering bonds at either par or a discount? My sense is "yes," but I'm genuinely not sure and open to being educated. If it's right that Treasury has never assumed the authority to offer premium bonds over many decades—and that this stable background reading of the statute and course of practice has informed decades of legislative tweaks to the debt limit and authorizing legislation—it would be a bad fact for the premium-bond theory. A final issue is context: The statute specifically contemplates discount securities (so "Congress knows" how to deviate from par), but does not seem to contemplate premium securities, and suggests "issue price" as the baseline for calculating face value.
This leaves me feeling somewhat uncertain. It may all be a non-starter because of the regulations, but even as a statutory matter I am not yet persuaded that premium bonds are the slam dunk that others think.