Keystone Possible Bargaining Chip in Congress Debt Talks

House Republicans, set on extracting concessions from Democrats as the need to raise the U.S. debt limit approaches, are planning to develop a strategy at their annual legislative conference next week.

Republicans are divided on what to seek from Democrats in exchange for their votes on a debt-ceiling increase as soon as next month. Democrats say it doesn’t matter what Republicans want as they won’t negotiate over the must-pass measure.

Majority Leader Eric Cantor and House Budget Committee Chairman Paul Ryan have suggested insisting on approval of TransCanada Corp. (TRP)’s Keystone XL pipeline as a condition of a higher debt ceiling. Representative Tim Huelskamp of Kansas is among Republicans who want to take a harder line and demand major changes to President Barack Obama’s health-care law.

“Anything that is holding back our economic growth, which tamps down upward mobility, would be something I’d be very favorable to,” Cantor of Virginia said in an interview with Bloomberg Television yesterday at the World Economic Forum in Davos, Switzerland.

Even as they plan their tactics, Republican leaders say they have no interest in holding the U.S. economy hostage over the issue.

“I don’t think that anyone, or most, would say let’s go and take a risk that is absolutely unknown by not making sure that we resolve the debt ceiling,” Cantor said.

In addition to Keystone, Republican leaders are considering a provision that would repeal the health-care law’s promise to reimburse insurers in some cases if benefits outpace premiums. Another option on the table would require the U.S. to consider compliance costs when setting environmental rules.

Health Law

Congress and Obama agreed in October to suspend the debt limit until Feb. 7 as part of an agreement to end a 16-day partial government shutdown caused by some Republicans’ refusal to fund the Affordable Care Act. The face-off ended Oct. 17, the day Treasury Secretary Jacob Lew said the U.S. would exhaust its borrowing authority.

This week, Lew told congressional leaders that the Treasury’s so-called extraordinary measures to stay within the limit will run out late next month. Congress should raise the debt limit “before February 7, 2014, and certainly before late February,” he said in a letter.

Rates on short-term Treasury bills rose yesterday, with one-month rates climbing to 0.05 percent, the highest on a closing basis since Nov. 27. Three-month bills touched 0.05 percent, the highest intraday level since Jan. 7.

‘Skittish Place’

“The bill market is in a skittish place and it doesn’t take much to make it jumpy, but this is also a potent reminder of how things could look a week from now if there isn’t progress made” on the debt ceiling, said Kenneth Silliman, head of U.S. short-term rates trading at Toronto-Dominion Bank’s TD Securities unit in New York. “The longer this goes on, it becomes clearer that the market took this risk for granted and risks lie just under the surface.”

There’s a risk that nobody blinks. That’s what happened leading up to October’s shutdown, and Republican leaders say they don’t want to repeat that scenario.

House Speaker John Boehner, whose Republican members were forced to retreat and end the shutdown, said in an interview Jan. 23 that forcing the impasse over Obamacare was a “predictable disaster.”

Senate Democrats have drawn a firm line, insisting they will back Obama’s demand that no policy strings or spending cuts be attached to a debt ceiling increase.

Senate Majority Leader Harry Reid told reporters Jan. 16 that the president stressed his position during a White House meeting with Senate Democrats a day earlier.

Not Negotiate

“One thing the president did make very clear yesterday -- and he was extremely emphatic, as he was the last go-round on this -- he, we will not negotiate on extending the debt limit,” the Nevada Democrat said.

Boehner’s spokesman, Michael Steel, said in an e-mail this week that “a ‘clean’ debt limit increase won’t pass in the House.”

“We hope and expect the White House will work with us on a timely, fiscally responsible solution,” Steel said.

The State Department is overseeing an environmental review to estimate the extent that Keystone would contribute to global warming, which has become a central issue in the effort by Calgary-based TransCanada to win approval to build the pipeline.

It will be hard to find enough House Republican votes to raise the debt limit if Democrats withhold their support. Republicans would need 217 votes among their 233 members to raise the limit with conditions, even as an opening gambit.

Tax Policy

Some Republicans are resistant to raising the debt ceiling or have said they want major concessions, such as repealing Obamacare, in exchange for doing so.

“It’s about spending,” Huelskamp said in a phone interview from his rural Kansas district. He said it “doesn’t make sense” for Republicans to raise the debt limit to send more Medicaid funds to states including New York and California that opted to expand the program.

Huelskamp said he wants a debate on tax policy at next week’s meeting, though he’s “not optimistic” fellow House Republicans will embrace a fight on the issue.

To contact the reporter on this story: Derek Wallbank in Washington at dwallbank@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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