Saturday, August 6, 2011

The Debt Deal and Its Impact on Feds

Main Article Image The Debt Deal and Its Impact on Feds

The House and Senate passed a deficit-reduction package that would raise the debt ceiling through the 2012 elections, and President Barack Obama signed the legislation on Aug. 2. The deal allows for an increase in the debt ceiling by $400 billion initially and between $2.1 trillion and $2.4 trillion through 2012 in two more increments.

The first stage will cut approximately $900 billion over the next decade from discretionary spending. It also caps agency spending in 2012 at $1.043 trillion, which is $7 billion less than the fiscal year 2011 budget. It is expected that the legislation will save $2.1 trillion between 2012 and 2021 through a series of caps on discretionary spending.

The plan also creates a 12 member committee comprised of Democratic and Republican representatives and senators. The committee would need to find $1.5 trillion more in deficit reductions over the next 10 years. If the committee fails to reach an agreement or if the plan is not passed by Congress, automatic, across-the-board spending cuts totaling nearly $1.2 trillion beginning in 2013 would be triggered. These cuts would be divided evenly from fiscal 2013 through 2021 and would come from nondefense and defense spending. The trigger option was included as a way to deter partisan gridlock.

Even though the legislation does not specify any potential cuts for federal workers, it is likely federal pay or benefits cuts could come out of the joint congressional committee's work. Those ideas have included: extending the pay freeze beyond 2012; increasing federal employees contributions to retirement; cutting federal employment through partial hiring freezes; reducing retirement benefits for new retirees by changing the way those benefits are calculated; and making cost of living adjustments less generous for all retirees.

In addition, federal agencies will see their budgets shrink as part of the spending caps over the next decade. These decreases will affect everything from hiring, training and other recruitment and retention incentives.

Agencies may also have to resort to steps such as furloughs, hiring freezes and layoffs due to the budget restrictions. However, everything is uncertain at this point.

"While there are no direct cuts to federal employee pay and benefits in the compromise reached by the president and congressional leaders, lawmakers still have targets to meet in decreasing funding, which could have an impact on feds down the road," said Patricia Neihaus, president of the Federal Managers Association. "Unfortunately, we've heard from lawmakers that federal employee pay and benefits are always on the table."