The 2012 Election Results: Implications for Federal Personnel

President Obama’s reelection means that a major assault on federal pay and benefits, which many feared would be a part of a Romney-Ryan administration, will not occur. Nevertheless, there will continue to be long-term pressures to reduce federal spending, and agency budgets and federal personnel will undoubtedly be a part of that for some time to come.

The fiscal cliff and sequestration
In the short term, the main concern is the fiscal cliff and the impact of sequestration, should no agreement be reached to avoid the across-the-board budget cuts scheduled for January 2, 2013. If implemented, the sequestration would cut $109 billion for FY13, divided equally between domestic and defense discretionary spending.

Chances that a comprehensive deficit reduction plan will be agreed to in the upcoming lame duck session are extremely slim. If any agreement at all is reached, it’s likely to be some sort of limited agreement that delays both sequestration and expiration of the Bush era tax cuts into the spring. Even that, however, is far from a done deal, so what was intended to never happen may well happen.

It’s unclear whether the Republican House leadership or the president have softened their positions at all from the failed “grand bargain” effort of the summer. Republicans still have the majority in the House, and the vast majority of them were signers of the Norquist pledge on never raising taxes in the 112th. However, it appears that fewer incoming House freshmen have signed the pledge. About a dozen of them reportedly refused to sign it during the campaign, and a number of returning members have disavowed the pledge.

While most of the current analysis focuses on whether sequestration will occur or not, there are a number of ways that the impact of sequestration can, and likely would be mitigated. It’s possible, for example, that sequestration could be triggered on January 2, but canceled a short time later, or even canceled retroactively.

In addition, the Budget Control Act (BCA), which mandates sequestration, allows the president to exempt military personnel accounts, which he has already agreed to do. While there is no provision in the BCA for excluding civilian personnel accounts, the continuing resolution under which the federal government is currently operating specifically permits the administration to accelerate spending in order to avoid furloughs. (see H.J. Res. 117, Sec. 112)

Federal pay and benefits
Federal employee groups quickly claimed President Obama’s reelection as an affirmation that the majority of the American people reject the idea that the federal government needs to be smaller. Governor Romney had argued during the campaign that federal pay and benefits were too high, and needed to be reduced. Congressman Paul Ryan (R-WI) had written a bill that increased federal employee FERS contributions from 0.8% to 5.8%.

Many in the federal community believe that federal employees have already borne an unfair share of the burden of deficit reduction efforts, and that the victory by the president as well as by supporters in Congress will end that. First among those issues is ending the federal pay freeze, and ending efforts to require federal employees to pay more for their retirement benefits.

Earlier this year, the president initially proposed a 0.5% pay increase for federal employees, and agreed to extend the pay freeze in the continuing resolution that is funding the government through March 27 of next year. In addition, the president signed a law increasing the amount that newly hired feds contribute to their pensions, from the current 0.8% to 3.1% of their salaries.

While federal employee groups have occasionally voiced opposition to some of the administration’s positions on federal pay and benefits, it’s pretty clear that a Romney-Ryan administration would have been significantly less friendly to their issues and priorities.

Federal Retirements
Agencies will be facing a long anticipated but never realized retirement wave, which is more likely to occur because of pressures on federal pay and benefits. According to OMB, 30 % of the federal workforce will be eligible to retire in the next four years, along with 58 % of the Senior Executive Service. A large retirement wave may provide a less painful way to achieve reductions in discretionary spending without either furloughs or reductions in force, by instituting some sort of formula that would limit the number of new hires.
Continued pressure on federal spending

It’s important to bear in mind that even if the fiscal cliff is avoided entirely, pressure to reduce federal spending will continue in the long term. If some sort of grand bargain is reached, one element it will surely include will be reductions in federal spending – the only question is which parts and how much. Remember that in May, OMB instructed agencies to reduce their FY 14 budget requests by 5 % for the second consecutive year. There’s also little doubt that directives to reduce agency spending on conferences and travel, first enacted following the revelation of the GSA conference scandal, followed by similar excesses by the Army, will continue to be enforced.