The Debt Ceiling And Its Potential Implications For Government Contractors

Contractors face potential payment uncertainty as a result of the current congressional inability to agree to increase the federal government's debt ceiling. The government reached the official debt limit months ago, on January 19, 2023. Yet by all appearances it continues to operate "as normal." The appearance of normalcy is due to the government's considerable cash reserves and its use of certain "extraordinary measures" (such as not paying into trust funds). Without further borrowing, however, the cash reserves will shrink, eventually forcing the government to make hard choices. That day may now come as soon as June 1, 2023.

Should political brinkmanship around raising the debt ceiling reach beyond the "X" day, the government may need to determine who gets paid and who gets furloughed. Government contractors may find themselves in line after higher-priority spending obligations, such as interest rate payments to U.S. bond holders, military salaries, civil