Budget Cuts Take a Toll on Federal Workforce
Policy + Politics

Budget Cuts Take a Toll on Federal Workforce

President Obama once promised to make federal government service "cool" again, but for many rank and file employees, that promise has not been fulfilled.  With the loss of millions of private sector jobs over the last three years, state, local and even the federal government feels pressure for parity in wages, benefits and tenure. 

Obama slapped a two-year pay freeze on the 2.1 million federal workers last year and sharply reduced the pool of bonuses for outstanding performance. In 2008, the federal government bonus pool was $408 million, distributed to 1.3 million federal workers.   Republicans and some Democrats have complained that the workforce is too large and that federal workers are much better paid than their private-sector counterparts.  According to the Commerce Department's Bureau of Economic Analysis, average federal compensation, including benefits, was $119,992 while the average in the private sector was $59,909.

Behind the political wrangling and rhetoric is a complicated debate over whether federal employees have an advantage in compensation over private sector workers, and if so, to what degree.

Andrew Biggs, a resident scholar at the conservative American Enterprise Institute in Washington, says claims that federal workers make twice as much as their private sector counterparts are “technically true, but not very meaningful.”

“Federal workers on average are older, more experienced, and better educated than private-sector workers, so they should earn more because of that,” Biggs, a former deputy commissioner of the Social Security Administration, told The Fiscal Times. “The question is, ‘How much more?’”

Based on his studies, most of the difference between federal and private-sector salaries is merited. But, he added, “About 14 percent isn’t merited, and that can be explained only by the fact that these workers work for the federal government, and not by other things.”

However, Biggs’s estimate of a 14 percent salary advantage for federal workers is at odds with the annual report of the President’s Pay Agent, an entity that includes two Cabinet officers and the director of the federal Office of Personnel Management--and whose findings are cited repeatedly by federal worker unions in defense of their members.

The latest Pay Agent report found that private sector workers had a 24 percent salary advantage. This finding appears to differ little regardless of which party controls the White House. But a major criticism of the Pay Agent report is that it compares only salaries rather than total compensation, including fringe benefits.

John Palguta, a vice president of the Washington-based Partnership for Public Service, a federal government advocacy group, says there are legitimate differences of opinions in evaluating the current federal pay and benefits system, but he is more concerned about the shrill tone of the current debate.  “I was in government when Ronald Reagan came in [in 1981], and it was hard to recruit because his inaugural address was ‘government is not the solution to our national problems, government is the problem,’” Palguta told The Fiscal Times. “That’s a terrible recruiting slogan: ‘Come join the problem’. But that’s what we’re seeing right now.”

As the White House and Congress struggle to negotiate a major deficit-reduction package and new debt ceiling, Democrats and Republicans are considering a proposal to have about 80 percent of the federal workforce pay a greater share of their pension costs.

The Executive Branch paid about $230 billion in salaries and benefits to federal workers in 2010, compared with $128 billion in salaries and benefits in 2000, according to budget documents. That represents a jump of more than $70 billion in annual salaries and $100 billion in overall compensation over the past decade.

Republicans are threatening to do something about it.  House Speaker John Boehner, R-Ohio, declared last year while campaigning that "taxpayers are subsidizing the fattened salaries and pensions” of federal employees “who are out there right now making it harder to create private sector jobs.  And GOP presidential candidate Tim Pawlenty, a former Minnesota governor, said recently he plans “to remind the federal bureaucracy that government exists to serve its citizens, not its employees.

“The truth is, people getting paid by the taxpayers shouldn’t get a better deal than the taxpayers themselves,” Pawlenty said.

Federal workers and their advocates bristle at these characterizations and warn that continued attacks could prompt an exodus of talented federal workers. "They're going to have a measurable negative impact on the government's ability to recruit, at least for the next several years," said Palguta, a former federal human resources official.

Steve Hollis, an information technology specialist at the U.S. Department of Agriculture for 30 years, says that many of his fellow employees see the handwriting on the wall and are considering leaving government. “Not that there are a lot of other jobs available right now, but the young people especially are trying harder to find other employment,” said Hollis, who is also an official of the St. Louis-based local of the American Federation of Government Employees, the largest federal employee union. And Hollis, 63, is thinking about taking his pension and getting out ahead of potential changes he fears could reduce the value of his retirement benefits.

“If some of these cuts go through, depending on what they are, I’m out of here--and I make decent money compared to most federal workers,” said Hollis, who is paid close to $90,000 a year. “Now, with my salary frozen and no overtime available and gasoline and food prices going up, I’m having to dip to some degree into my savings.” 

But in the face of a $1.5 trillion annual deficit and public demands for spending cuts, it seems almost inevitable that Congress will freeze most hiring and reduce benefits for federal workers during these tough budgetary times. The tidal wave of cutbacks in worker benefits at the state and local levels will give added impetus for Congress and the White House to act.

Just last week, two more states secured major union givebacks.  In New Jersey, lawmakers approved a roll-back of benefits for 750,000 government workers and retirees in a major victory for Republican Governor Chris Christie.  The legislation will sharply increase what state and local workers must contribute for health insurance and pensions, suspend cost-of-living increases for retirees, and raise the retirement age.  In New York, Democratic Governor Andrew Cuomo secured a three-year pay freeze, furloughs for and increases in employee contributions to their health benefits.  Other states, including Wisconsin, Michigan, and Ohio, have made similar cuts.

The proposal for substantially boosting federal workers' share of their pension costs-- endorsed by House Republicans and earlier by the Deficit Commission appointed by Obama--could save the federal government close to $120 billion over the next decade. But it could also require affected workers to divert as much as an additional 5 percent of their current take-home pay.

Federal employees who are part of the Federal Employment Retirement System, or FERS, receive a defined-benefit pension by paying in 0.8 percent of their salary, while the federal government makes a contribution equivalent to 11.2 percent of wages. Under the pending proposal, the cost would be evenly split--with the government and the employee each paying 6 percent, similar to a 401(k)

Supporters of the proposal argue that, under the status quo, private taxpayers–just one in five of who presently have access to a defined-benefit pension–are being forced to underwrite $14 of every $15 of the cost of federal employee pensions.

Federal employee unions counter that their members are already paying 12 percent of their salaries toward retirement when contributions toward Social Security and the federal equivalent of a 401(k) plan are taken into account. “Any kind of increased contribution will be a pay cut for federal employees on top of a two-year pay freeze,” says Colleen Kelly, president of the National Treasury Employees Union, which represents about 150,000 employees at 30 federal agencies.

Attrition, Not Layoffs
Under a House Republican proposal, the government would fill only one federal job for every three vacancies, a move intended to reduce the size of the federal government by about 10 percent or 200,000 employees over the next three years. Opponents say this would both place an additional burden on federal workers and impede the missions of already strapped federal agencies, at a savings of little more than one-half of 1 percent annually to the total federal budget. And, they note, the current federal civilian workforce is no larger than it was 30 years ago, under President Ronald Reagan.

Even without these new measures, an Obama budget document projects that, of a current federal civilian workforce of just over 2.1 million, as many as 300,000 may be leaving in 2011--mostly by retirement.  

Related Links:
Obama’s New Vow to Cut Wasteful Spending (The Fiscal Times)
More Bureaucrats, Please (The Washington Monthly)