WASHINGTON -- The Treasury Department violated federal law by using Social Security trust funds to keep the government operating while Congress delayed action on raising the debt ceiling, a congressional official says.
But Comptroller General Charles Bowsher, in a letter released Thursday to Rep. James Jones, D-Okla., chairman of the House Social Security subcommittee, said Treasury Secretary James Baker had not 'acted unreasonably' in what he described as an 'extraordinary situation.'
The letter was in response to questions submitted to the head of the General Accounting Office by Jones regarding the use of Social Security funds to meet government costs in September, October and November.
'We conclude that, although some of the secretary's actions appear in retrospect to have been in violation of the requirements of the Social Security Act, we cannot say that the secretary acted unreasonably given the extraordinary situation in which he was operating,' Bowsher said in a cover letter to a GAO report on the matter.
The congressional watchdog agency found that payroll tax revenues earmarked for the Social Security Trust Fund were not invested in interest-bearing Treasury securities as required under law.
Instead, the GAO said, the Treasury redeemed investments to make benefit payments to retirees and to pay other government costs.
The GAO said $28.2 billion in Social Security tax money was not invested in September, October and the first 13 days of November after the debt ceiling was reached on Sept. 3.
But as the Treasury's general fund cash position worsened, it redeemed $9.6 billion in trust fund investments in November even though only $6.9 billion was needed for payments to retirees, the report said, which was 'a departure from the normal pattern of redemptions to meet Social Security payments.'
'In sum, it appears ... that the secretary redeemed or failed to invest the trust funds' assets in amounts and for periods of time greater than absolutely necessary to pay Social Security benefits,' the report said. 'However, this is a judgment reached only with the benefit of hindsight.'
It said the secretary was 'required to act in a complex and fluid situation' and had 'many other duties to carry out' at the time.
'Under all the circumstances involved, we conclude that he did not act unreasonably,' the report said.
Bowsher also said the Treasury had not violated a constitutional provision that limits to Congress the authority to borrow money.
Congress, he said, has delegated this authority to the Treasury secretary subject to the debt limit, and borrowing from the trust funds had not violated the overall limit.
Bowsher also said in his letter that the Treasury may restore interest lost to the trust funds because of failure to fully invest Social Security tax money.
