GAO: Debt-limit fight cost government $1.3B

The last-minute drama of August's debt-limit fight cost the federal government at least $1.3 billion in increased borrowing costs, according to a new study from the Government Accountability Office (GAO).

The government watchdog reported Monday that as markets watched the debt-limit fight, the spread between government debt and private securities narrowed, indicating Treasury debt was being viewed as a riskier investment as the ceiling approached.

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And the ultimate cost of the fight could be higher, as the GAO's analysis did not account for the multiyear costs associated with Treasury bonds that will remain in the market beyond fiscal 2011.

"Many of the Treasury securities issued during the 2011 debt limit event period will remain outstanding for years to come," the GAO stated. "Accordingly, the multiyear increase in borrowing costs arising from the event is greater than the additional borrowing costs during fiscal 2011 alone."

For example, the spread between 10-year Treasury bonds and comparable private securities fell by 0.26 percent when the debt-limit fight reared its head, from January 2011 to August 2011.

The report also cited Treasury officials who said that the scramble to stay below the debt limit demanded department time and resources that could have been spent on "other important cash and debt management responsibilities."

The officials interviewed by the GAO estimated that Treasury employees charged with managing the public debt had to devote over 6,000 hours to the situation, including over 400 hours of overtime.

"Managing federal debt as such delays occurred was complex, time-consuming, and technically challenging," the GAO wrote.

In Monday's study, the GAO reiterated its recommendations from a 2011 report, saying it "continued to believe" that Congress should consider ways to better link decisions on raising the debt limit with the actual spending and revenue decisions that would require its increase. Doing so would "avoid potential disruptions to the Treasury market and to help inform the fiscal policy debate in a timely way."

The GAO also noted that the "extraordinary measures" the Treasury took to slow the approach to the debt limit and give Congress more time to strike a deal were consistent with the relevant legislation and regulations.

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