Treasury’s Borrowing of Benefits Funds Stirs Probe

WASHINGTON — The chairman of a House Social Security panel plans to hold hearings next year on whether Congress should take away the Treasury secretary’s power to manage Social Security trust funds.

Rep. James R. Jones (D-Okla.) said Friday that the hearings were prompted by a recent General Accounting Office report contending that Treasury Secretary James A. Baker III may have violated the law by dipping into Social Security trust funds to keep the federal government running while Congress struggled with the debt-ceiling crises.

However, GAO Comptroller Charles A. Bowsher, in a letter to Jones, who chairs the Ways and Means’ subcommittee on Social Security, said Baker did not act unreasonably.

‘Extraordinary Situation’

The Bowsher letter, dated Dec. 5, stated:

“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.”

Jones had asked Bowsher, head of the congressional watchdog agency, for a GAO opinion on the propriety of Baker’s management of the Federal Old Age and Survivors’ Insurance Trust Fund and Federal Disability Insurance Trust Fund during the government’s October, 1984, and September-November, 1985, public debt ceiling crises.

This year Baker canceled $28 million in long-term bonds held by the Social Security trust funds to prevent the government from running out of borrowing authority, and similar actions were taken in 1984.

The GAO found that, because the trust funds transactions did not increase the total amount of outstanding debt subject to the statutory limit, Baker “did not violate the statutory debt limit and did not usurp the congressional power under the Constitution to borrow.”

Assets Kept Uninvested

But it also found that to the extent the trust funds’ assets were kept uninvested to permit the payment of other obligations of the government or to restore cash balances, the “trust funds were being used to sustain the government’s operations, contrary to the statutory scheme.”

“Even if this were legal, this procedure certainly gives the American people the impression that the Treasury Department views the Social Security trust funds as an open revolving cash fund that they can use for whatever purpose they like,” Jones said.