A labor union for U.S. government employees moved on Tuesday to renew its constitutional challenge to the law putting a ceiling on federal debt, even though the threat of a default on the debt has now been averted – until at least late next year.
The union, the National Association of Government Employees, filed a new version of its challenge in a federal trial court in Boston, seeking a ruling that the debt limit – which has been in force, off an on, since 1917 – is unconstitutional.
This version appeared to have two purposes: to head off an expected move by the Biden Administration to dismiss the challenge, and to answer the skepticism expressed by the judge in the case that the union and its members may have nothing to lose, legally, now that there is no present crisis.
The debt of the U.S. government, representing what the government has borrowed in the past to pay its bills, is currently limited by the ceiling law to a total of $31.4 trillion. But, under a deal brokered this month by President Biden and the Republican Speaker of the House, Rep. Kevin McCarthy, the ceiling has been suspended until January 1, 2025.
Biden signed that deal into law on June 3, just two days before the limit would have forced the government into default, leading what economic analysts said would have been an immediate, deep recession in the U.S. and a financial calamity worldwide.
It was that deal that led U.S. District Judge Richard G. Stearns to order the union, on June 5, to notify him by June 20 on whether it intended to try to keep the case going. If that was its plan, the judge said, he would then set a schedule to test, among other issues, whether the union and its members had a legal right to sue – that is, “standing” to sue.
Under the doctrine of “standing,” imposed on federal courts by the Constitution’s Article III, no one is allowed to sue unless they can show they have suffered an injury of a legal kind, that they can identify the cause, and that the injury will be remedied if the lawsuit seeks. The doctrine is designed to make sure that courts decide real-world disputes, not give advice on abstract legal theories.
The federal employees’ new filing on Tuesday spelled out its claim that, even though the debt ceiling has been suspended, those workers have already lost potentially millions of dollars by actions that the federal Treasury Department took in January of this year as it was seeking to avoid borrowing more than the ceiling allowed before Biden and McCarthy made their deal.
The amount of that loss, the document said, has not yet been calculated, but it claimed that a similar risk of default in 2011 led the Treasury then to take measures that resulted in losses to those workers of $378.5 million.
Here is the basis of that claim:
The union’s members take part in a “Thrift Savings Plan” that allows them to contribute to the so-called G Fund, which is a retirement or pension fund. The contributions are invested by the Treasury in government debt instruments, building up interest that is added to the workers’ accounts in the Fund.
Under a federal law governing the G Fund, the Treasury has authority to make those investments. Last January 13, however, Treasury Secretary Janet Yellen – already facing the prospect of a default due to the debt ceiling law – suspended any investments of the union members’ contributions into Treasury instruments because that would push up the debt. It was one of several “extraordinary measures” that Yellen is authorized to employ temporarily when there is a risk of exceeding the debt cap.
Yellen’s suspension apparently lasted until the Biden-McCarthy deal was put into effect. As a result, the union’s new complaint claimed, the workers lost millions of dollars due to the lack of any interest gains for the intervening months.
The filing does not spell out whether the union members have ever been able to recover the losses they claimed for 2011, or whether they might now recover for any losses suffered this year.
Under the general principles of “standing” to sue under the Constitution, a financial loss is usually sufficient to show a legal harm that can be the basis for suing.
Presumably, that is one of the central issues that the union and the Biden Administration will be facing when the judge orders new legal briefs on whether the union case can proceed.
The lawsuit asks Judge Stearns to declare – as a temporary measure – that the debt limit law is unconstitutional in its present form because it has the effect of transferring the constitutional power to deciding spending priorities from Congress to the President any time the federal debt might go into default.
It does not challenge Congress’s authority to have set a ceiling on federal debt, as Congress has done for 106 years, although it notes that the idea is controversial as a constitutional matter because there is wording in the Constitution that promises that the government will always pay its debts.
That is in the 14th Amendment, adopted after the Civil War, which declares that “the validity of the public debt of the United States…shall not be questioned.” That provision has never been invoked as a basis for challenging the debt ceiling law.
Although the lawsuit stresses the constitutional power of Congress to direct how federal revenues are to be spent, it argues that the debt ceiling as it currently stands – together with the 14th Amendment admonition to honor the debt — will inevitably push the President into unilateral action to stave off default.
The union asks the judge for two kinds of rulings: first, that the existing debt limit law violates the constitutional command that the powers of one branch of the federal government not be transferred to another branch, and, second, that it violates the constitutional ban on discrimination by taking away the property only of some individuals – here, the union members’ interest gains in their retirement accounts.
If the judge allows the case to go on and ultimately accepts either claim, the lawsuit urges him to block the debt limit from going back into effect at the start of 2025 under the Biden-McCarthy deal.