Sequestration’s impact: Furloughs, layoffs loom large

In the federal court system, up to 2,000 employees could be laid off or all 20,000 employees furloughed for 16 days, a top judicial official wrote in a memo early this month. The plan also includes spending reductions on travel and information technology projects, as well as freezes of promotions, step increases and cash awards.

“It’s going to be bad,” said James Holderman, chief judge at the Chicago-based U.S. District Court for Northern Illinois.

Even the intelligence agencies would not be spared from the cuts.

“It will affect all of us — absolutely all of us,” said Chris Inglis, deputy director of the National Security Agency, a part of the Defense Department responsible for electronic eavesdropping abroad on would-be adversaries. While agency officials are working through their options, Inglis said, “it’s too soon to tell” what the potential impact would be.

Under last year’s Budget Control Act, the cuts will begin Jan. 2 unless Congress and the Obama administration agree on a path to reduce future long-term deficits by $1.2 trillion by 2021. For the Defense Department, the cuts would chop most accounts by 9.4 percent; domestic agencies would face across-the-board 8.2 percent reductions in discretionary spending, according to estimates from the Office of Management and Budget. Military personnel and the entire Veterans Affairs Department would be exempt, White House officials have said.

The chances of a deal are entangled in a broader showdown over whether to extend Bush-era tax cuts. As of late last week, President Obama and House Speaker John Boehner — the two top protagonists in the deal talks — appeared far apart. The stalemate could last through the holidays.

“I’m convinced they are going to solve it, but I’m not convinced they are going to solve it until the last minute, which would be in January,” said Thad Juszczak, a former federal budget officer who now works as a consultant at Grant Thornton.

Contractors could be hit particularly hard as agencies slash procurement spending to cushion the effects on government employees and meet legal mandates. By law, for example, NASA is barred from cutting its civil service workforce through 2013, but contractors and other companies that support the agency’s space exploration mission could shed some 20,500 jobs, according to analysis released last week by the Aerospace Industries Association, an industry trade group. Cuts to the National Oceanic and Atmospheric Administration would cost the agency about 1,000 government and private jobs in its weather satellite program, the analysis said.

The report shows that “the biggest single threat to our space programs’ continued success are arbitrary and capricious budget cuts,” the association’s head, Marion Blakey, said in a statement.

Governmentwide, the most vulnerable companies could be those that hold some $23 billion in contracts up for renewal or re-competition next month. Although the Nuclear Regulatory Commission won’t lay off or furlough employees in the event of sequestration, “we would rework some contracts,” spokesman Scott Burnell said.

But while a few firms, such as Rockwell Collins and L-3 Communications, have alerted investors to a possible earnings hit, contractors generally “don’t want to scare investors, they don’t want to scare their bankers, they don’t want to scare employees,” said Alan Chvotkin, counsel and executive vice president at the Professional Services Council, a contractors trade group. “In this whole area, they’re just being very cautious.”

Alarm is meanwhile mounting among the federal workforce.

“There’s a lot of discontent and anxiety on the floor,” said Patty Viers, president of an American Federation of Government Employees union local in Columbus, Ohio, that represents workers at the Defense Logistics Agency and three other DoD operations. “These are our livelihoods.”

“We’re worried,” said one IRS employee who asked not to be identified. “Everybody’s sort of going, ‘Don’t spend any money; we don’t know what’s going to happen in January.‘”

The crisis is the third in the last two years to threaten the federal workforce with deep cutbacks as a climate of long-term austerity takes hold. Even if a deal is reached, Viers said, “we could be looking at an extended pay freeze or paying more for our retirement or all of the above.”

So far, however, employees are getting little information as many agencies refer all questions to OMB, whose official stance remains that sequestration will not happen. Although some departments quietly started planning efforts months ago, OMB only this month gave the formal go-ahead for DoD to begin preparations. The White House has also acknowledged asking agencies for more information to “finalize calculations” on the spending reductions that would be needed.

That step should not be seen “as a change in the administration’s commitment to reach an agreement and avoid sequestration,” spokesman Jay Carney told reporters this month, adding that the White House will hand out more guidance as needed. “This is just acting responsibly because of the potential for this happening.”

An OMB representative referred specific questions last week back to Carney’s comments.

If the cuts take effect next month, they would land one-quarter of the way through the fiscal year, meaning that the actual impact on domestic agencies’ budgets could be around 11 percent, said Barry Anderson, a former assistant budget director at OMB.

“Even the best-run agencies will have difficulty swallowing that,” Anderson said. “It’s a pretty big pill.”

Particularly for agencies whose expenses are tied up mainly in payroll and benefits, such as OMB and the Federal Trade Commission, there will be no way to avoid furloughs and other cutbacks, he said. If, however, a deal looks close at the beginning of next month, OMB could opt to delay the cuts by continuing to fund agencies at normal levels, Anderson said.

“Could you go off the cliff and still not see any real pain? The answer is yes,” Anderson said. The risk is that if a deal is not reached, agencies could have to absorb the cuts later in the quarter, with much more draconian effects.

At Customs and Border Protection, with some 60,000 employees, “we’ve got everything on the table,” acting Chief Operating Officer Thomas Winkowski said last week when asked whether the agency is contemplating furloughs or reductions in force. “It just depends on how this rolls out.

“There are a lot of unanswered questions,” he said, including how OMB would implement the cuts.

Whatever the final decisions, they will not damage border security, Winkowski insisted.

“We were stood up to protect this country … and that’s what we will continue to do,” he said.

In federal courts, it will ultimately be up to chief judges for each district and circuit to decide how to manage the reductions. In anticipation of sequestration, the Chicago court has built up a reserve fund to offset the cuts for about three months. But if there has been no agreement by late March, Holderman plans to shut down the courthouse one day a week, furloughing up to 150 employees.

Even agencies not directly in the line of fire could be stung by ricochets off those that are.

One example is the General Services Administration. Its activities will not be directly affected by sequestration because most of its operating budget comes from customer fees or rents it collects for its services, acting GSA Administrator Dan Tangherlini said at an event last week. But the agency could feel the pinch indirectly if funding levels for its agency customers are cut.

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