The bitter political fights likely to result could deal severe setbacks to federal employees, including furloughs, layoffs, a continued pay freeze, hiring freezes, cuts to benefits and possibly a government shutdown.
Likely the first of these battles will hit late next month, when the Treasury Department will no longer be able to fund government without an increase in the debt ceiling, now at $16.4 trillion.
President Obama last week insisted he will not negotiate over an increase to the debt ceiling, but congressional Republicans — smarting over the recent deal to raise taxes with almost no spending cuts — plan to use the opportunity to force major cuts in federal spending.
And if both parties dig in their heels, the government could shut down and catch federal employees in the middle of this dispute. That would mean temporary furloughs for most of the federal workforce.
“Our opportunity here is on the debt ceiling,” Sen. Pat Toomey, R-Pa., said during a Jan. 2 interview on MSNBC. “The president’s made it very clear. He doesn’t want to have a discussion about it, because he knows, this is where we have leverage. We Republicans need to be willing to tolerate a temporary partial government shutdown, which is what that could mean.”
Senate Minority Leader Mitch McConnell, R-Ky., also signaled in an opinion piece posted on Yahoo News’ website last week that Republicans will use the looming debt ceiling showdown to shrink spending.
The massive spending cuts known as sequestration — which would have gone into effect Jan. 2 if no deal had been struck — have been pushed back two months and cut from $109 billion to $85 billion. The $24 billion price tag for last week’s fiscal cliff deal includes about $12 billion in new revenues from a change in tax policy and another $12 billion in discretionary spending cuts. Those cuts, which will be split equally between domestic and defense spending, amount to $4 billion this year and $8 billion in fiscal 2014, according to an Office of Management and Budget spokeswoman.
Federal managers are in the dark about exactly how the delayed sequestration will affect them.
“We’re still figuring things out,” said Army Lt. Col. Elizabeth Robbins, a Pentagon spokeswoman, in a Jan. 2 email.
Colleen Kelley, national president of the National Treasury Employees Union, said the lingering threat of sequestration is “very unsettling for employees and for the agencies.”
“This never-ending cycle of uncertainty for employees, who could be facing a furlough down the road, is very disheartening,” Kelley said. “Frustrated isn’t even a strong-enough word.”
One federal employee, who asked for her name and agency not to be printed, said she and her co-workers are wondering what the spending cuts included in the fiscal cliff deal will mean for them and their programs.
“Does it mean, if you have to travel, you won’t be able to travel?” she asked. “Everybody wants to know if they’re going to be furloughed.”
“You make these assumptions that it’s all going to be hunky-dory [and sequestration cuts will be avoided], and then it doesn’t happen,” she said. “Then you’ve wasted two months, when you could have been making gradual cuts.”
Federal contractors are likewise mystified.
“Contractors would like to know, what does my life look like after March?” said consultant Larry Allen. “Do I have a life after March, [or] do I have to go find something else to do?”
Allen said contractors should keep talking to their potential customers over the next few months. He said contractors need to show agencies that they have done their research, that they understand the agencies’ needs, and — if an agency decides to hire them in the shortened sequestration environment — that they can get the job done in a relatively short time.
If sequestration does go into effect in early March, it will likely mean immediate hiring freezes across government. Agencies such as Defense also will probably start laying the groundwork for furloughs, although it will probably be several months before affected employees are sent home without pay. Some agencies may turn to layoffs.
Kelley and Jacque Simon, public policy director at the American Federation of Government Employees, said they want agencies to talk to them more about how sequestration will be implemented, if necessary.
“We want to start a conversation so we don’t find ourselves scrambling at the last minute,” Kelley said.
Simon said AFGE doesn’t want the brunt of sequestration’s cuts to come down on the employees it represents, and said the union will remind agencies that federal employees have already contributed $103 billion over a decade to deficit reduction through a 2¼-year pay freeze and through increases to the pension contributions of employees hired beginning this year.
Steve Bell, a former senior Senate Budget Committee staffer now at the Bipartisan Policy Center, said GOP anger at the lack of spending cuts in the fiscal cliff deal means sequestration is now even more likely to occur.
“There are a lot of folks who said, ‘We got nothing in terms of spending restraint, so we’ll just let the sequester occur,’ ” Bell said.
Among those voicing frustration is Supreme Court Chief Justice John Roberts. In fiscal 2012, the judiciary’s $7 billion budget represented 0.2 percent of total federal spending, Roberts wrote in an annual report released late last month. Roberts highlighted efforts to restrain spending on rental space, streamline staffing and share administrative services among individual courts.
But because the judicial branch has “already pursued cost-containment so aggressively,” Roberts wrote, “it will be increasingly difficult to economize further without reducing the quality of judicial services.”
Unlike executive branch agencies, courts “do not have discretionary programs they can eliminate,” he said. “A significant and prolonged shortfall in judicial funding would inevitably result in the delay or denial of justice for the people the courts serve.”
If sequestration had gone into effect last week, all 20,000 federal court employees could have been furloughed for up to 16 days, according to a planning memo from a top judicial official last month. Since then, the executive committee of the Judicial Conference — the courts’ national policy-making body — has approved a set of emergency spending measures that could be implemented as part of a coordinated strategy if sequestration takes effect in March, spokeswoman Karen Redmond said in an email. Because funding will be very tight regardless, Redmond said, cost containment will continue to be a priority.
Extended pay freeze?
The third cliff looming is the continuing resolution temporarily funding the federal government. That will expire March 27, and unless Congress acts otherwise, a 0.5 percent federal pay raise will go into effect. Federal employees’ pay scales have been frozen for two years.
But House Republicans have repeatedly passed bills to further freeze federal pay — most recently on New Year’s Day — though all of those bills died in the Senate. They are likely to try again this year, and may insist on tying a pay freeze to a deal on sequestration, the debt ceiling or funding for the rest of fiscal 2013.
A smaller COLA
One hit on federal benefits that appears likely to be brought to the negotiating table in the coming months is the so-called chained Consumer Price Index, which would reduce cost-of-living adjustments for federal pensions. Republican negotiators repeatedly insisted on adopting the lower — and, according to economists, more accurate — measure of inflation as a way to lower future adjustments to Social Security benefits and federal and military pensions. Obama told NBC’s “Meet the Press” that he’s willing to adopt chained CPI to strengthen Social Security, even though it is unpopular with Democrats and seniors.
Federal employee groups such as the unions and the National Active and Retired Federal Employees Association also strongly oppose the chained CPI.
Other changes to federal pensions that in the past have been backed by Republicans — and could return this year — include further increases to pension contributions and a switch to the high-five system. This would calculate feds’ pensions based on the average of their five highest annual salaries, instead of the current method of averaging their highest three salaries.