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Feds are target of debt commission recommendations

Nov. 15, 2010 - 06:00AM   |  
By STEPHEN LOSEY and Comments
Former White House chief of staff Erskine Bowles, left, and former Sen. Alan Simpson, right, were appointed co-chairs of the commission by President Obama.
Former White House chief of staff Erskine Bowles, left, and former Sen. Alan Simpson, right, were appointed co-chairs of the commission by President Obama. (Alex Wong / Getty Images file photo)

The calls for freezing federal pay and cutting the federal work force are getting stronger. The latest salvo is last week's draft proposal from the White House's bipartisan deficit reduction commission, which calls for a three-year freeze on federal pay raises and bonuses. It also calls for slashing the federal work force by 10 percent 200,000 positions by 2020.

The bipartisan recommendations make it increasingly likely that the federal budget is going to be balanced in part on the backs of federal employees.

"No one is going to be unscathed by the sacrifice that all of us are going to have to make," former Office of Personnel Management Director Michael Hager said. "The deficit has grown to such a proportion that it means everybody's going to have to chip in."

It's far from certain which if any of the commission's draft proposals will be enacted. Fourteen of the commission's 18 members must agree on the final slate by Dec. 1. Congress will then have to vote on the final proposals.

But the proposed cuts are deep they would cut $4 trillion from the deficit by 2020 if enacted in full and are already proving controversial. Some key lawmakers are taking aim at the plan which means it could have a tough time making it through Congress.

"This proposal is simply unacceptable," outgoing House Speaker Nancy Pelosi, D-Calif., said in a statement criticizing the suggested cuts in Social Security and Medicare.

Hager said he thinks Congress has no choice but to act, and make some hard choices to cut the deficit.

"The election a few weeks ago is a clear indication that the American people want this to be changed," Hager said. "Chances are as good as they're going to get, and if they don't take action, two years from now there will be another incredible change in Congress."

But Hager said that even if the plan isn't approved in its entirety, some components, such as the pay freeze, could resurface in other pieces of legislation, such as appropriations bills.

Until now, most calls to freeze federal pay and cut the work force have come from Republican lawmakers and libertarian or conservative think tanks like the Cato Institute and the Heritage Foundation.

But Hager said that having the approval of a Democrat like Erskine Bowles co-chairman of the commission and former White House chief of staff under President Clinton could give Democratic lawmakers cover to reduce the size of the federal payroll. Former Sen. Alan Simpson, R-Wyo., is the commission's other chairman.

Limits on hiring

The draft proposal would only allow agencies to hire two new employees to replace every three who leave, cutting 200,000 employees from the federal payroll and saving about $13.2 billion by 2015. All agencies would have to make those staffing cuts, but the draft proposal would allow the president to exempt certain agencies if their cuts would harm national security, as long as those cuts were made up elsewhere.

This would likely spare agencies such as the Defense and Homeland Security departments and the intelligence community and force the reductions to fall more heavily on other agencies.

And if those exemptions are made, there probably are not enough federal employees remaining on the table to meet those cuts without a drastic reduction in the federal government's responsibilities, said John Palguta, vice president for policy at the Partnership for Public Service.

"Then we have to start talking about wiping out entire organizations, which is fine, but we need political guidance on what we need to shut down," Palguta said. "We need legislation to say, we're going to get rid of the Department of Education and their 6,000 employees. Or how about [the Food and Drug Administration, the National Institutes of Health], and the folks doing the meat and poultry inspections? Most domestic agencies are doing things the public says they want. They want their Social Security checks."

Pay freeze

Palguta said he doubts such drastic staffing cuts will be enacted. But the pay freeze has a better shot at surviving, he said.

The government currently isn't having trouble attracting qualified job candidates since the economy has decimated the private-sector job market. But if the economy rebounds and private companies are hiring again by 2014 the last year of the proposed three-year freeze Palguta said he worries that the government would then have a hard time competing with the private sector for qualified employees.

Since federal employees' pensions are based on an average of their three highest annual salaries, the proposed pay freeze would affect feds' retirement. But the proposals do not directly target federal retirement benefits.

But to further whittle down the deficit, Hager said Congress may need to take a harder look at just those benefits.

Hager said many private-sector firms have cut their pension plans and shifted their employees onto defined contribution plans such as 401(k)s, and he said the government may need to do the same. He said he supports raising the age federal employees can begin to draw their pensions the Federal Employees Retirement System's minimum retirement age is now 57 for employees born in or after 1970 and said the government should encourage feds to save their own money for retirement through the Thrift Savings Plan. Hager suggested increasing the government's TSP matching contributions as an incentive to save more.

"Everything's on the table now," Hager said. "Why should the government be more generous than the private sector?"

Hager also said the government will eventually have to reform how its employees are paid and replace the current General Schedule system, which provides the same pay raises to employees regardless of what job they do. A new pay system could help balance the budget by limiting pay raises for federal occupations that are overpaid in comparison to the private sector, but steering pay raises to federal workers who are likely underpaid.

But such a reform would be highly controversial, and Hager said he doesn't expect to see a civil service overhaul anytime soon.

Contractor cuts

The draft proposal also recommends cutting 250,000 nondefense government contractors, claiming it would save $18.4 billion by 2015.

Stan Soloway, president and CEO of the Professional Services Council, a trade organization representing more than 300 companies, said the focus should be on the work that is done, not who is doing it.

Instead of imposing arbitrary cuts, the government should work to identify and eliminate inefficient or unnecessary work wherever they find it, he said.

"In the past, arbitrary reductions in civil servants or contractors, which are among many options identified by the commission chairs, have not generally proven an effective means of achieving sustainable budget savings," Soloway said.

He also questioned the math behind the proposal, calling the report's estimate of 12.1 million federal employees and government contractors "wildly inaccurate and misleading." The report also said that the contractor work force has grown by 2.4 million since 2002.

Foreign Service pay

Susan Johnson, president of the American Foreign Service Association, is concerned by a proposal to cut locality pay for Foreign Service officers serving overseas. Congress granted those officers Washington-area locality pay on a temporary basis in 2009 and 2010, but has not ordered a permanent fix. The commission said canceling future locality pay would save about $427 million each year.

Johnson said AFSA would rather see budget cuts come from reducing programs and not from slashing personnel costs.

"We're supposed to be a Foreign Service organization, but we cut people's salaries when they go overseas?" Johnson said. "That's very odd. It doesn't seem equitable. I understand the need to reduce deficits across the board, but some of these kind of cuts realize very modest savings overall, and inflict serious harm to small civilian departments and their capacity to carry out their mission."

Johnson also objected to a proposal to cut the federal vehicle budget by 20 percent for all agencies except the Defense Department and U.S. Postal Service. Johnson said the State Department whose employees frequently work alongside military service members in war zones and use armored vehicles should also be exempted from those cuts.

Other cuts

Federal travel budgets at all agencies, except the U.S. Postal Service, would also be cut 5 percent, saving $4.2 billion over 10 years. Federal employees should instead use teleconferencing technology to reduce the need to travel, the report said.

And the commission tried to find savings in things as mundane as setting photocopy machines to make double-sided copies by default, cutting computer power usage and eliminating paper pay stubs. Those miscellaneous savings around the office could save more than $1 billion annually, the report said.

Michael Zolandz, a public policy expert and partner at SNR Denton, a law firm that helps clients navigate the federal government, said that the draft proposal is a starting point for negotiations that will end with some sort of budget cuts.

"The release at this point in time is a preemptive strike to set the debate for these cuts," Zolandz said.

Each of the cut proposals will probably be debated during the budget process, with some cuts being included in the president's budget request, he said.

While individual items such as cutting federal travel budgets and reducing vehicle fleets don't individually do much to reduce overall spending, they add up to significant savings, he said.

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