Control of Congress will turn over to the Republicans in 2015. As of this writing, there will be at least 52 Republican senators and 243 House Republicans. In short, there was a significant shift in power as a result of this year’s mid-term elections.
From press releases and analytical articles issued the day after the election, there is plenty of consternation among the federal workforce about what this change in power will mean for federal employees. There are too many unknown factors that will come into play for anyone to definitively prognosticate but there are several realities that all Americans will face that are likely to be in the forefront with new leadership in Congress. Some of these issues will directly impact the federal community.
Underlying many of the issues likely to arise is the massive federal debt. It has not been in the news in recent months. While news about the national debt has not been on the front pages, the debt has not gone away. It is likely to receive more attention in Congress next year and there are implications for the federal workforce.
The current federal debt is almost $18 trillion. At the start of the Obama administration, the debt was under $11 trillion. The Congressional Budget Office points out that interest on the debt is becoming a larger portion of federal spending. This year, the federal government will pay $231 billion in interest charges. By 2024, that will rise to more than $876 billion. These figures are probably too optimistic because, if the economy continues to improve and inflation and interest rates increase to a more typical level, the interest to be paid on the national debt is likely to go higher.
Tax revenues for the federal government are at an all-time high. Unfortunately, even with tax revenue now exceeding 1.3 trillion dollars, the national debt is continuing to go up and is projected by the Congressional Budget Office (CBO) to grow another $506 billion in the current fiscal year.
Impact of the Debt on the Federal Workforce
This federal debt is already having an impact on the federal workforce and likely to have more of an impact.
A Republican Congress will focus on the national debt and federal spending. No doubt, this will create political conflict with the White House although there is not a significant likelihood of another government shutdown this year as both parties will probably want to ensure that does not happen.
Focusing on ways to cut federal spending means that ideas surfacing in the House will come up again in the next Congress. Speaker of the House John Boehner and the next Senate Majority Leader, Mitch McConnell, penned an editorial in the Wall Street Journal after the election this seek outlining priorities of the new Congress. Fixing the national debt problem will be one of the priorities and the debt issue leads to many of the other priorities.
Here are several possibilities on how federal employees may be impacted.
The Chained CPI
While the usual consumer price index (CPI) deals with the rise and fall in fixed items, a “chained CPI” would also consider choices people may make as a result of changes in their behavior. For example, if the price of beef goes up, many people will buy chicken instead because it may be a substitute that costs less. Also, when the price of a product goes up, people will probably buy less of that product.
The chain weighted CPI incorporates changes in both the quantities and prices of products. When it comes to calculating costs for multibillion dollar programs like Social Security, a chained CPI is likely to mean that benefit increases do not rise as much. Over time, benefits, payments, and pensions that are adjusted with CPI calculations could all fare differently under chained CPI rules.
The amount saved by the government would be significant. The amount paid out to those benefits from an annual COLA would likely be less.
The advantage of the chained CPI, from a budget standpoint, is that the savings would be significant—probably $10 billion or more over a decade—because programs such as Social Security impact a large number of Americans in addition to federal employees. The political disadvantage is that cutting benefits to a large number of people can create a political disadvantage in an election year.
Federal retirement has already been an area in the limelight as a way to reduce federal spending. In 2012, Congress approved a bill to increase the contribution rate from to 3.1 percent for new hires from 0.8 percent. As part of a 2013 budget deal, federal employees hired in 2014 and beyond pay 4.4 percent of their salaries toward their pensions. Chances are, further changes will be discussed to the federal retirement program.
The House has previously proposed legislation that would eliminate supplements to the benefits of federal workers who are not subject to mandatory retirement, are covered under FERS and who retire before age 62 or the age at which their Social Security benefits can begin. It would be reasonable to expect this proposal to resurface as a way to eliminate some government spending.
Darrell Issa (R-CA) and Paul Ryan (R-WI) recently sent a letter to the Congressional Budget Office in October 2014 asking for evaluations on proposals to overhaul FERS, including “adjusting the retirement contributions of federal employees.” Other suggestions included changing the formula for the defined benefit plan and increasing the role of the Thrift Savings Plan.
In short, there is little doubt that consideration will be given to changing the federal retirement system. Moreover, while the president has veto power over any legislation that is passed by Congress, this is an area in which cuts have been successfully implemented during the Obama administration.
Federal pay is likely to be a topic that is given more consideration in Congress. Federal employees did not have an across-the-board pay raise for three years, a small pay increase in 2014 and there will likely be a 1% pay raise in 2015. Moreover, while the Federal Salary Council has proposed significant expansion of the locality pay system to new areas, that proposal has not been implemented by the President’s Pay Agent.
With the huge federal debt and current economic conditions, it is unlikely there will be a major push to provide federal employees with a big pay raise. While federal pay and benefits are a major topic of interest to FedSmith readers and the federal community, there is little sentiment for a major pay raise for federal employees throughout the country, particularly with the negative opinion of government held now by many Americans. (See “Ask Not What You Can Do For Your Country” vs. Making Government “Cool”)
Fixing the Government Bureaucracy
The public’s perception of the federal government has not improved in the past several years. In the Wall Street Journal editorial referenced above, fixing “An antiquated government bureaucracy ill-equipped to serve a citizenry facing 21st-century challenges, from disease control to caring for veterans” will be a focal point in Congress next year.
It is not clear what this would entail but there are several possibilities. One result is likely to be making it easier to fire federal employees. This has already happened to a limited extent as a result of the massive publicity received regarding the Department of Veterans Affairs and legislation that was passed in the House (and, as is usually the case, no action was taken in the Senate) to make it easier to remove some federal executives. This legislation is likely to be revived and, perhaps, expanded to make it easier to hold federal employees more accountable by making it less cumbersome to take adverse or disciplinary action against those working for the federal government.
There may also be changes in the federal labor law. After years of steep losses in the private sector, about half of all union members are now in the public sector. Federal employee unions now represent about 60% of the federal workforce and are politically active, generally publicly supporting Democrats running for office.
Official time for federal employee unions has been an issue that has already been under attack in the House. Senator Tom Coburn (R-OK) wrote: Agencies like the IRS and VA have hundreds of employees on their payrolls that do nothing but full-time union work paid for by taxpayer dollars. This bill will restore the public’s trust by ensuring federal employees – and the taxpayer funds that support them – are instead used to appropriately execute the mission of every federal agency.” (See “Official Time” for Union Officials Under Fire in Congress)
While the decisions to be made in politics are difficult to predict accurately, the “perfect storm” for federal pay and benefits has been brewing for some time. (See A Perfect Storm for Federal Employee Pay and Benefits) Proposed and actual changes in federal employee pay and benefits are likely to be making news during the remaining two years of the Obama administration. Chances are, the topics outlined above will be in the forefront.