The deadline for the Obama administration and Congress to reach an agreement to raise the debt ceiling is fast approaching, and there’s a real possibility that those efforts will fail and the government would have to default. So where does that leave the federal workforce, retirees and the military?
Because the situation is fluid and unprecedented, there are far more questions than definitive answers in Washington’s latest budget crisis. Here’s the Fed Team’s list of those questions and answers.
Q: Is this the same as a government shutdown?
A: No, but those shutdowns offer the only precedent for what might happen in a default.
Shutdowns have been caused by a lapse of appropriations—failure to pass laws needed for agencies to spend money. The most recent happened in late 1995 into early 1996.
In a shutdown, employees whose jobs are not considered emergency in nature are put on unpaid leave—that is, they are furloughed.
Emergency employees continue to work because even when agencies have no operating cash, the law allows them to incur spending obligations for the safety of human life and the protection of property. They work without pay, at least for the time being.
In contrast, when a debt limit is reached, an agency can continue to make commitments to spend, according to a Congressional Research Service analysis. That might mean it could continue to incur the obligation to pay employees in the future for work they currently are doing—that is, keep employees on the job.
In shutdowns, employees of self-funding entities such as the U.S. Postal Service are unaffected and the same presumably would be true in a default situation.
Q: Would I keep working if the government goes into default?
A: That’s unknown. The government would continue to take in money from taxes, but only about enough to pay about three-fifths of ongoing expenses. That would force the government to choose what to pay for. One option could be to furlough large numbers of employees, though that would mean disruptions in the programs they work on.
In any furloughs, employees whose jobs are emergency in nature seem most likely to be kept at work. When a government-wide shutdown was threatened this year, all but about 800,000 of the federal government’s 2.1 million executive branch workers were designated as emergency employees. Even among emergency employees, though, agencies might make distinctions over just how vital they consider certain jobs to be.
Q: Will I get paid if the government goes into default?
A: In shutdowns, both employees who were furloughed and those who were kept on the job later have been paid for the time. However, when a shutdown was threatened this year, a general expectation arose that employees who were furloughed, and possibly even those who stayed on the job, would not be paid. But a decision never was made because the shutdown was averted.
One other issue involves pay cycles. Most federal employees are paid every two weeks, so if a default comes and goes within a pay cycle and money is provided to pay employees, there may be no noticeable effect on paychecks.
Q: Who determines whether employees would get paid?
A: In shutdowns, that decision is made by Congress and the White House through the budget measure that provided the needed appropriations and ends the shutdown. The same could apply with whatever law raises the debt ceiling.
Q: Is there a chance that all employees will continue to work in a default?
A: The most recent formal look at that issue was done in a 1995 Congressional Budget Office report that said that employees “would not be sent home, and checks would continue to be issued. If the Treasury was low on cash, however, there could be delays in honoring checks.” Whether that would hold true in the present situation is unknown.
Jay Powell, a visiting scholar with the Bipartisan Policy Center, which has issued a “Debt Limit Analysis,” says that section of the CBO report does not apply to the point after May 16, which is when additional measures were taken to get us to Aug. 2. Those measures are no longer available. The Center’s analysis indicates failure to raise the debt ceiling would mean Uncle Sam would not be able to pay about 50 percent of his bills. “You have to assume that there would be a real risk of significant furloughs,” Powell said.
Q: If I’m furloughed, can I come in to work anyway to get my work done on time?
A: That’s unclear. In a government shutdown, employees who are furloughed are prohibited from coming to work. Whether that would be the case in a default situation, if employees are furloughed at all, is unexplored territory. Again, the difference is that in a spending lapse-caused shutdown, agencies are barred from taking on new spending obligations such as employee salaries, while in a default they wouldn’t be.
Q: Will veterans still receive benefits checks in the event of a government default? What about Social Security and federal retirement benefits?
A: No one can say for certain—it could go back to the question of how the government prioritizes the money it has available. Senate Majority Leader Harry Reid (D-Nev.) has warned that veterans payments could halt if there is no deal, echoing comments from President Obama. The White House also has said it can’t guarantee that Social Security payments would be made in a default, which suggests that federal retirement payments would be vulnerable, too.
Republicans have called such comments scare tactics.
Q: What would happen to my health insurance?
A: In appropriations lapses, an employee’s health insurance coverage continues even if an agency does not make the premium payments on time, according to the Office of Personnel Management. If an employee is in a non-pay status, the enrollee share of the premium would accumulate and be withheld from pay upon return to pay status, it says. Again, it’s uncertain whether that policy would necessarily apply in a default situation.
Q: How would a failure to raise the debt ceiling affect investors’ money in the Thrift Savings Plan government securities fund?
A: Here is what a TSP letter to concerned investors says: “With regard to the Federal debt limit, absent legislation by Congress to raise it, the Secretary of the Treasury may determine that portions of the monies in the G Fund cannot be reinvested in Treasury securities because to do so would exceed the present Federal debt limit. However, all of the G Fund monies would still be on account with the Treasury, and the interest which would accrue if the G Fund were fully invested would still be credited to the G Fund.
“Some published reports have mischaracterized the actions which may be taken by the Treasury, which are authorized under the law. G Fund investments are safe and will continue, by law, to accrue earnings. The integrity of the G Fund would not be compromised. TSP participants’ accounts would not be affected as a result of any suspension of issuance of Treasury securities to the G Fund.”
The letter goes on to say: “The G Fund account balances would be exactly the same from day to day as if they were invested in Treasury securities. Furthermore, disbursements of TSP loans and withdrawals would not be delayed, nor would the amounts of those payments be reduced.”
Q: Has this happened before?
A: Yes, although briefly, in 1979.