No matter how the debt crisis ends, federal employees will take a double dose of a bitter pill.
Even the best-case scenario of Congress and the White House agreeing on a plan to raise the debt ceiling would have federal employees taking a hit through whatever medicine is prescribed for Americans in general, in addition to money-saving measures aimed directly at the federal workforce.
And if the government goes into default, the damage to the nation’s economy would be terrible for everyone, with federal employees suffering perhaps more than most.
Any final package could include “some adjustments with respect to overall compensation,” said Rep. Chris Van Hollen (D-Md.), even as he and others work “to limit any negative impact on federal employees.”
Limiting that negative impact might mean imposing the harshest medicine on people not yet on Uncle Sam’s payroll. Van Hollen said he expects a plan “would distinguish between current employees who already have certain commitments and expectations and the rules of the game as they apply to future federal employees.”
The pain will be particularly severe if House Republicans prevent a debt ceiling agreement by continuing to say no to any compromise involving increased tax revenue. President Obama has agreed to consider reductions in entitlement programs, but the refusal by intransigent Republicans to consider tax hikes puts the nation at risk.
The Bipartisan Policy Center says the Treasury would not be able to pay at least 40 percent of the government’s bills if the ceiling is not lifted. Federal salaries and benefits are on a long list of unpaid bills under a couple of options offered by the center.
But let’s assume the government does not default, especially with the burst of optimism after Tuesday’s release of a bipartisan deficit reduction plan that could spur action on the nation’s debt.
The outline of the plan by senators known as the “Gang of Six” does not mention federal employees specifically, except to say congressional pay would be frozen. The senators’ plan, however, does generally follow recommendations of December’s fiscal commission report, which included several proposals denounced by leaders of federal-employee organizations.
The “Moment of Truth” report by The National Commission on Fiscal Responsibility and Reform would add another year to the two-year pay freeze already imposed on federal workers, for a total savings of $20.4 billion in 2015, and gradually cut the workforce by 10 percent — about 200,000 employees — to save $13.2 billion.
Federal retirement benefits are likely to take a hit in any deficit-and-debt-reduction plan. Employees would pay more for lower retirement benefits under changes the commission said should be considered to save $70 billion over 10 years. The retirement proposal has three elements:
l Basing federal pension benefits on the five highest years of an employee’s pay instead of the highest three to save $5 billion through 2020.
l Deferring COLAs (cost-of-living adjustments) for retirees until age 62 but also providing a one-time catch-up payment at age 62 to “increase the benefit to the amount that would have been payable had full COLAs been in effect.” This has a projected savings of $17 billion through 2020.
l Increasing employee contributions to employee pension plans to save $51 billion through 2020.
Remember, these are the kinds of things being considered for the best-case scenario for federal workers.
One member of the Gang of Six, Sen. Tom Coburn (R-Okla.), also has his own plan. It would consolidate the Office of Personnel Management and the duties of several other agencies, including the Federal Labor Relations Authority, which decides labor-management issues; the Merit Systems Protection Board, which hears appeals of disciplinary actions against employees; the Office of Government Ethics and the portion of the Equal Employment Opportunity Commission that deals with claims of discrimination filed by federal employees. That, in effect, would largely reverse a 1978 law that broke apart many of those formerly centralized functions.
Coburn also wants to cut federal employment by 300,000 workers over 10 years, deny bonuses and freeze for five years the locality pay component of raises that normally applies to most employees. He also would cut federal contractors by 15 percent.
“We shouldn’t be trying to balance the budget on the back of federal employees; that’s just not fair. . . . They shouldn’t be singled out,” Van Hollen said.
But the reality is that federal employees will share whatever pain is spread across the nation, plus the pain of cuts to federal workforce expenditures.