How the Sequester Will Affect Consumers and Business
Business + Economy

How the Sequester Will Affect Consumers and Business

REUTERS/Shannon Stapleton

During the budget standoff between President Bill Clinton and congressional Republican leaders back in 1995 and 1996, widespread layoffs of federal workers played havoc with the federal bureaucracy and posed serious hardship and inconvenience for millions of taxpayers across the country. Furloughs of as many as 800,000 federal employees temporarily shut down large swaths of the federal bureaucracy and delivered a serious blow to the economy.

The most visible signs of that government crisis were the closing  of the Washington Monument and 368 National Park sites around the country. But the impact of the furloughs was far more serious than that:

Health and welfare services for military veterans were curtailed; the Centers for Disease Control and Prevention stopped disease surveillance; new clinical research patients were not accepted at the National Institutes of Health;  toxic waste clean-up work at 609 sites was halted; the U.S. Border Patrol put off hiring 400 new agents, and 200,000 applications for U.S. passports went unanswered.

“There was a miscalculation politically that government would be shut down, employees would be furloughed,” and life would go on, recalled John Palguta, vice president for policy at  the Partnership for Government Service and a former federal personnel executive. “But there were a whole plethora of things where people really did care about the services that government provided beyond basic emergency and national defense sort of things. And finally Congress pretty much decided that this was not a winning proposition.”

As President Obama and Republican congressional leaders clash this week over whether to allow  $85 billion of across the board cuts in defense and domestic spending to take hold beginning  March 1, government workers and taxpayers across the country are again facing the specter of widespread government furloughs that could once again disrupt the economy and the lives of millions of Americans. 

For sure, there is disagreement over whether massive temporary layoffs and tough government belt-tightening is a good or bad thing in the midst of a shaky economic recovery. After months of fretting over the national security and economic implications of tough, across the board spending cuts and layoffs, many Republicans came to the conclusion that these automatic cuts or sequestration may be the best answer for enforcing fiscal constraint and bringing the trillion dollar annual deficit down.

If the answer turns out to be at least a month or two of deep, automatic cuts in defense and domestic spending, then widespread furloughs will be the government’s main response.  In effect, a furlough is the federal government’s personnel weapon of choice in coping with major budget crises like the looming sequestration or even rarer government shutdowns.

An administrative furlough is a carefully planned strategy for weathering fiscal crises by temporarily placing targeted workers on unpaid leave after issuing 30-day notices. A furlough is considered to be an alternative to layoff, according to management experts.  When an employer furloughs  employees, it requires them to work fewer hours or to take a certain amount of unpaid time off.  Generally, the management theory is to have the majority of employees share some hardship as opposed to a few employees losing their jobs completely.
Unlike a reduction in force or RIF, federal officials can pick and choose who to furlough– and for how long. And they don’t have to be concerned about honoring seniority or military service, or having to provide fired workers with severance pay or other benefits that add to the government’s overall costs. 

“A reduction in force is not a useful management tool as a cost-saving mechanism in the short term,” Palguta said. “A federal manager may have some great young employees who are doing five times the work of anybody else, but they’re the newest employees, they have the least tenure, they’re not veterans. So you have to separate them.”

Acting White House Budget Director Jeffrey Zients warned in a Jan. 4 memorandum that federal agencies this time will likely need to furlough “hundreds of thousands of employees” while reducing services – such as food inspections, air travel safety, prison security, border patrol and other “mission-critical” activities.

The Department of Defense, the Interior Department and other major federal agencies have put out similar warnings to their employees and contractors, and the Pentagon began cutting back on spending and putting off new contracts and hiring in anticipation of the deep cuts.  Government and industry experts predict that sequestration could cost the economy at least one million government and private sector jobs in the coming year.

“This is not a game, this is reality,” retiring Defense Secretary Leon E. Panetta declared in a speech at Georgetown University on Wednesday, as he warned that  the cuts would curtail  U.S. naval operations in the western Pacific by as much as a third and force one-month furloughs for as many as 800,000 Pentagon civilian employees beginning this spring.

Government officials, major defense contractors and policy think tanks have warned that – if  allowed to occur –sequestration  would result in the loss of a million or more jobs across the country in the coming year.  The anticipation of a sharp reduction in government spending already has begun to hurt the economy, with the gross domestic product contracting by 0.1 percent during the fourth quarter of 2012, according to a government report released last week.
The two largest federal labor unions are preparing to exercise their bargaining rights if agencies decide to furlough employees because of sequestration budget cuts, according to the Washington Post. The National Treasury Employees Union and the American Federation of Government Employees say they will work aggressively to soften the blow of potential furloughs and other changes prompted by the cuts.

Sequestration could begin in early March unless Congress delays or revokes it, and some agencies have raised the prospect of putting practically all of their employees on furloughs as a money-saving move. While most agencies haven’t said how many unpaid days they might order, or when, several Defense Department sections have projected furloughing employees for one day a week over 22 weeks, from the third week of April through September, according to the Post. But in unionized workplaces many of the details would be negotiable.

To those in the private sector who have been “downsized” or laid off, the idea of being furloughed one-day a week from a guaranteed union job seems like a cake-walk. You continue to get health benefits for yourself and your family, and other benefits like contributions to your 401K contributions continue.

The antiquated federal system of government gives preferences to seniority rather than performance and hasn’t kept up with new techniques and technologies that allow for a streamlined and more efficient workforce.  Many agencies do not follow standard financial procedures and are not held accountable for failure. The Government Accountability Office actually highlights major areas that are at high risk for waste, fraud, abuse, or mismanagement, or are in need of broad reform. There are now 30 areas on GAO's High Risk list.

To top it off, there are no contingency management plans in the current federal system that allow agency directors to deal effectively with a sequester. As a result, the most absurd and draconian cuts are likely to take place out of default, not design, and once again, the country loses.

Beyond the threat of a further decline in the workforce, lawmakers and government officials say that the furloughs would pose major inconvenience  and problems for many Americans. These include:

 About a  10 percent reduction in the FAA’s 40,000-man workforce

 A 25 percent decline in Coast Guard air and surface operations 

 An increase in waiting times at the nation’s busiest airports by as much as three hours with the furloughing of customs agents

 Elimination of Head Start programs for some 70,000  disadvantaged children 

 The shuttering of food plants that won’t be able to operate without federal meat and poultry inspectors.

 Reduction in embassy security as the State Department will be forced to absorb a  $168 million reduction in funding for that purpose.

 Cutbacks in clerks and other personnel to process applications for Social Security and Medicare, or to process  paper tax returns or field taxpayers’ questions at the Internal Revenue Service.

Obama on Tuesday urged Congress to quickly pass a new package of limited spending cuts and tax increases to head blunt or block implementation of the across the board spending cuts, but House Speaker John Boehner of Ohio and other GOP leaders are resisting any compromise that includes more tax increases. If the negotiations continue well past the March 1 deadline, federal departments and agencies will have to make tough choices in determining who to keep at work and who to send home – and for how long..

“It literally could be tens of thousands – maybe even hundreds of thousands of people furloughed, if sequestration carries through the rest of the fiscal year,” Palguta said. “But there are a lot of variables . . . and at  the end of the day there’s no way to accurately predict what the impact will be.”