Treasury Secretary James Baker appears to have broken the...

By ELMER W. LAMMI   |   Dec. 26, 1985

WASHINGTON -- Treasury Secretary James Baker appears to have broken the law by using Social Security trust funds to keep the government running while Congress acted to raise the debt ceiling, the comptroller general said in a letter released Thursday.

But Comptroller Charles Bowsher, in a letter to Rep. James Jones, D-Okla., chairman of the House Social Security subcommittee, suggested Baker had not 'acted unreasonably' in doing so.

The letter, sent early this month and released Thursday, was in response to questions submitted to the head of the General Accounting Office by Jones in regard to 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 General Accounting Office 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 called for under the law.

Instead, the GAO report said, the Treasury redeemed investments to make benefit payments to retirees and to pay other government costs.

In November, the report said, $9.6 billion in trust fund investments were redeemed, even though only $6.9 billion was needed for payments to retirees.

'In sum, it appears, on the basis of the information now available, 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 provision of the Constitution limiting the authority to borrow money to the Congress.

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.

In response to other questions raised by Jones, Bowsher 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.