Future federal benefit costs top $3 trillion

The cost of benefits owed to federal employees, retirees and veterans of military service surpassed $3 trillion in fiscal 2001, the Treasury Department and the Office of Management and Budget announced Friday.

In fiscal 2001, the federal government owed $3.36 trillion in pensions and other post-retirement benefit costs, compared to $2.76 trillion in 2000. Future benefit costs are now greater than the $3.32 trillion publicly-held debt, the largest component of the $5.7 trillion national debt. In fiscal 1995, the pubicly-held debt was roughly $2 trillion larger than the cost of post-retirement benefits.

Efforts to pay down the publicly-held debt and the rising costs of post-retirement benefits have brought the two figures closer in recent years, according to the fiscal 2001 "Financial Report of the U.S. Government," released Friday by the Treasury Department and OMB. Post-retirement benefit costs also went up because of the fiscal 2001 Defense Authorization Act, which expanded health benefits for military retirees.

An OMB official said the surging cost of federal benefits reinforces the need for the Bush administration's competitive sourcing initiative, which requires agencies to put a certain percentage of their jobs up for competition with the private sector.

"The experience that has been demonstrated is that you can drive down costs when you have competition," the official said.

The public-private job competition process forces agencies to redesign their operations to provide services in cheaper, more efficient ways. While federal pensions and retiree health care benefits represent fixed costs that are not changed by such reengineering, agencies can get a handle on their retirement costs if they find ways to do their work with fewer employees.

"As people become eligible for retirement in the next five years, if instead of just replacing those people, you can redesign the business processes, then you're going to be able to control the costs even if you don't lay off a single person," said the official.