Spending cuts likely to trigger furloughs

Federal agencies will have to consider furloughing employees if Congress and the White House cannot reach a deal before the end of the year to stave off the governmentwide automatic spending cuts scheduled to take effect in January 2013, according to a former top budget aide on Capitol Hill.

“I’m afraid you are going to have to be looking at furloughs,” Bill Hoagland, a longtime policy and budget adviser to former Republican Sens. Bill Frist of Tennessee and Pete Domenici of New Mexico, told an audience of federal employees during Government Executive’s Excellence in Government conference in Washington on Thursday. Hoagland said if furloughs are to occur at some agencies, managers will have to decide them wisely to avoid triggering reductions-in-force among staff, which could be costly. A furlough of more than 30 calendar days, or of more than 22 discontinuous work days, is considered a RIF, according to the Office of Personnel Management.

Hoagland, now vice president of public policy at CIGNA Corp., is not optimistic that Congress can cut a deal to avoid the spending cuts, known in budget parlance as sequestration, before the Jan. 2 deadline. Congress returns from August recess next week for a handful of legislative days when lawmakers likely will pass a continuing resolution to keep the government running through March 2013. After that, Congress won’t be back until after the Nov. 6 election, and lawmakers then will have to confront a perfect storm of policy issues, including sequestration, that will have a major effect on the economy. The 2011 Budget Control Act mandated sequestration go into effect starting in January 2013 if the bipartisan congressional super committee failed to devise a deficit reduction plan. The automatic, governmentwide cuts will total about $1.2 trillion, spread evenly from fiscal 2013 through fiscal 2021, and would be divided equally between defense and nondefense spending. The White House is required to release a report this week detailing where the spending cuts will fall across government.

Sequestration offers some protection to federal benefits, but it also could result in layoffs or furloughs at some agencies. For example, federal employees' pensions and health care are both protected under sequestration, but if a worker is laid off as a result of cuts stemming from sequestration, then the government's contributions to retirement and health care would cease. Also, furloughed workers are not guaranteed back pay; Congress decides whether to give retroactive pay. Massive across-the-board spending cuts also would adversely affect government contractors, many of whom are located in the Washington area.

“I have to be honest with you, I don’t see a solution [before the deadline],” Hoagland said. “The worst-case scenario is Thelma and Louise, we do go over the cliff.” The government is facing what officials refer to as the “fiscal cliff” at the end of 2012 and the beginning of 2013 -- a range of expiring tax cuts, sequestration and another round of negotiations over the debt ceiling.

Jim Hearn, director for federal programs and budget process at the Senate Budget Committee, said most of the energy on Capitol Hill now is focused on getting the stopgap spending measure passed to avoid a government shutdown after Sept. 30. Hearn, who used to work for Hoagland, tried to offer a slightly less bleak assessment of sequestration. “What is best and worst depends on your perspective,” Hearn said. He added automatic spending cuts would be bad for agency managers, but could be good for future generations who would benefit from less government debt and the longer-term growth spawned by fiscal belt-tightening.

Hoagland agreed with Hearn that sequestration today could help the country tomorrow, but wondered at what price -- especially since Medicare and Medicaid are exempt from the automatic spending cuts. “Will the medicine kill the patient?” he asked, adding that sequestration will be “very tough medicine.”