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Sequestration and the Debt-Ceiling: Your Guide to a Federal Workforce Disaster in the Making (UPDATED)

Thursday, January 24, 2013

(National Federation of Federal Employees)

When Congress and the President agreed to a smaller than expected deal to avert the so-called “fiscal cliff” this January, federal employees got a bad deal. This was not because of what was in the deal, which was actually quite positive; it was what had been left out – comprehensive solutions to the looming threat of massive sequestration cuts and a potential government default over the debt ceiling.

 

Without these two critical pieces included in the deal, Congress missed a golden opportunity to end more than a year of uncertainty in the federal workforce. Now, with the government a mere two months away from the worst one-two punch imaginable, legislators are working toward a deal to delay the debt ceiling debate until May. This would allow Congress to focus on sequestration and the fiscal year 2014 budget without the political brinksmanship of a debt ceiling debate poisoning the legislative waters.

 

Constant deals and half measures like these make it difficult to keep your finger on the pulse, but this is not reason to cede vigilance. It is critical in these next several months that federal employees know what they are up against, and what they can do to stop it. For the latest news on sequestration and the debt limit, “Like” NFFE on Facebook at www.facebook.com/NFFEUnion. Here is your comprehensive guide to the impact of sequestration and the debt-ceiling:

 

What is Sequestration?

 

Sequestration is a series of deep budget cuts set to hit federal agencies each year over the next decade, totaling $1.2 trillion in budget reductions. They were mandated by Congress following the Congressional “Super Committee’s” failure to find more than a trillion dollars in budget savings to offset the most recent increase in the federal borrowing limit in August of 2011. The idea behind this approach was to mandate a series of cuts that were so unpopular that Congress would have no choice but to work together on a mutual agreement. In the intervening 500+ days since the collapse of these negotiations, however, Congress has still failed to come together to avoid the massive cuts, which brings us to where we are today.

 

Where do the Scheduled Cuts Apply?

 

Each year the cuts will be spread 50/50 between the Department of Defense (DoD) and the rest of the federal government. By the rest of the government, we mean nearly every other civilian federal department such as the Department of Agriculture, Department of the Interior, Department of State, etc. (Veterans Affairs was exempted). This means that total cuts each year will be about $110 billion in total, or $55 billion for DoD and $55 billion for other agencies (though shifting budget baselines over time may skew this figure). Nevertheless, the impact will be immense.

 

How Would Sequestration Impact the Federal Workforce?

 

The consequences of these massive cuts for federal agencies cannot be understated – the results would be disastrous. Cuts of between 6% and 10% of an agency’s budget year after year would require drastic cost-saving measures to maintain. Though no formal plans have been announced, several agencies – including DoD – have said that furloughs and other personnel actions would have to be part of their response. Drastic actions would be essential to make ends meet, opening the door for extended hiring freezes, furloughs, and even RIFs. This effect would be especially acute in agencies where the workforce makes up a large part of the annual budget, such as the U.S. Forest Service.

 

What is the Debt-Ceiling?

 

The debt-ceiling, also known as the federal borrowing limit, is a dollar figure set by Congress denoting how much money the federal government is permitted to borrow to cover its expenses. Whenever that limit is reached, the President approaches Congress to request an increase which, historically, was approved without question. Over the past two years, however, hardline conservatives in Congress have used the borrowing limit as a blunt tool to force broad spending cuts. The unfortunate consequence of this political brinksmanship is a situation where the government has incurred debts (to businesses, American citizens, foreign entities, etc.) but is unable to pay them. If Congress fails to pay these bills by increasing the borrowing limit, the result is a government default on its debts. This has never occurred in U.S. history, and it would certainly have catastrophic consequences for our economy if it ever did happen. Watch this handy video to learn about the debt ceiling.

 

What Happens if the Government Defaults on its Debt?

 

The true answer is that no one knows because it has never been allowed to happen. That said, we have come closer in the last two years of defaulting than ever before, so it is critical to be prepared. Here’s what we do know. When the federal borrowing limit is hit, the Treasury cannot legally borrow any more money to pay the government’s bills (we already hit this point on January 2nd). This forces Treasury to take what it calls “extraordinary measures” to pay the freight. What that really means is that Treasury can employ a number of accounting tricks to keep the books covered until a particular date.

 

This date was originally estimated to be around February 28th. With the prospect of Washington passing another temporary debt limit increase looking likely, however, that date may change to some time in May or June.

 

So what happens once Treasury’s “extraordinary measures” run out? Without the authority to borrow any more money, the government will be permitted to spend only what it takes in through taxes. Unfortunately taxes only cover roughly 60% of the amount the government needs to stay open. The result, then, of default is that government takes an overnight budget cut of 40% until the borrowing limit is raised.

 

How Would A Default Impact Federal Employees?

 

Again, it is tough to say precisely how federal workers would be impacted since our country has never defaulted on its debt before. Nonetheless, we can make some educated guesses. With only 60% of the typical funding left to run the entire government, the federal government would be forced to prioritize among its bills. This means that paying federal salaries and benefits will have to compete with paying government bond holders, social security annuitants, Medicare recipients, contractors, and many others. Given the way federal employees have been treated over the past four years, there is little reason to expect we will have any advantage in this process.

 

So what if the government decides that federal employees are not a priority? Does the government shut down like it did in the 1990’s? Not quite. A lapse in appropriations – the cause of all government shutdowns – is not a factor here because the authority to incur expenses already exists. When the borrowing limit is hit, however, the government is unable to borrow the money needed to pay these expenses. The result is an odd state of limbo for federal employees and others owed money by the government. Federal employees may be told to continue working without pay, they may be sent home in a furlough, or some combination of the two. Some have even suggested issuing IOU’s to federal employees in the form of “registered warrants.” Either way, the take home message is that we do not want to sit around and find out.

 

How Would Avoiding Sequestration and a Government Default Impact the Federal Workforce?

 

The best answer here is, it depends. Were Congress to come to a responsible agreement that recognizes the immense sacrifices federal workers have already made to reduce the deficit, then federal employees would be ok. However, such a scenario is unlikely given the Congressional track record of the past several years. In fact, many members of Congress, including Sen. John McCain (R-AZ), Jon Kyl (R-AZ), and Buck McKeon (R-CA) have proposed measures to delay sequestration by slashing federal pay and jobs. Similarly, during the last debt-ceiling debate other conservatives in Congress offered to increase the borrowing limit by extracting billions in federal job and compensation cuts.

 

In a situation where cuts need to be made to offset either the sequester or a borrowing limit increase, you can count on a large number of politicians to offer up federal workers to take the brunt of the cost.

 

What Can Federal Employees Do to Stop It?

 

Here there is truly just one answer: speak up! It may seem useless with an out of touch Congress more occupied with infighting than solving the nation’s problems. However, if enough of us speak our minds, we CAN make a difference. Do you part by calling the U.S. Capitol Switchboard at (202) 221-3141 and asking to speak to your House Representative and two Senators. Tell them federal employees have sacrificed enough, and the time for partisan games is over.

 

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Comments

Steven Lerol   01/28/13 12:05 pm
We need a Balanced Budget
The Senate should pass a balanced budget (which hasn't been done in years). A balanced budget would mean spending no more than one takes in in taxes(just like everyone does with their household budget). If we continue borrowing (raising the debt limit ceiling) there will come a time when no one will want to borrow us money. At that point you are basically bankrupt. If we encounter bankruptcy our retirements are basically in trouble. We will probably only receive 30 to 60 cents on the dollar (at least this is what happens when private companies go bankrupt). It is also what is happening in Greece when they can no longer meet their obligations. To protect our retirements the union should demand a balanced budget from the Senate even though there may be short term pain (remember we spend 1.00 for every .60 cents collected).

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