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Federal Eye
Posted at 02:20 PM ET, 08/01/2011

Debt deal could trigger federal employee job, benefit cuts

The debt ceiling agreement does not directly require cutbacks in federal employment or federal worker benefits but it may set the stage for such cuts to come.

“I am pleased to see that the deal does not include any immediate cuts to federal pay or pensions. However, the impact on the federal workforce remains uncertain and agencies are likely to face reductions in their budgets,” National Treasury Employees Union president Colleen M. Kelley said.

Should the agreement be passed into law, its plan for a two-stage cut in the federal budget could have implications for employees at each step.

The first step would be to set a series of caps on agency spending over 10 years, beginning with the fiscal year that starts Oct. 1. Those caps would affect spending in both defense and non-defense agencies.

While government spending still is projected to rise, the increase would be smaller than what was projected previously, by some $900 billion over that period. The measure does not specify amounts for individual agencies or programs, leaving that issue to the government’s budget process. Agencies in turn would have to decide how to live within the amounts available.

Depending on how severe the budget restrictions become, agencies might have to resort to steps such as unpaid furloughs, hiring freezes and layoffs. But that is uncertain at this point.

Certain programs would enjoy at least some protection, including disaster relief and efforts to detect fraud in disability and health insurance programs. Further, the caps would not apply to spending for the wars in Afghanistan and Iraq.

The second step would be the creation of a special House-Senate committee tasked with finding up to $1.5 trillion in savings. The regular congressional committees that oversee such programs could make recommendations, by Oct. 14, but would not be required to do so.

The measure does not specify potential targets, but the special committee could examine the numerous ideas for reducing federal benefits have been in circulation for months.

Those ideas have included, among others, extending the general pay freeze beyond 2012, increasing the employee contribution to retirement, cutting federal employment through partial hiring freezes, reducing retirement benefits for new retirees by changing the way those benefits are calculated, and making cost of living adjustments less generous for all retirees.

For employees, especially those near retirement, the effective dates of any such changes would be an important issue, one that also would have to be decided.

Under the bill’s requirements, if the committee doesn’t recommend at least $1.2 trillion in savings by Nov. 23, or if it makes such a recommendation but Congress does not pass it by Dec. 23, automatic cuts of that amount would begin, spread out over 2013 through 2021. Such cuts would put still more pressure on agency budgets and, in turn, employment levels.

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