Pay Looms Large in Budget Debate

There’s been a lot of talk about pay freezes in the last week. The debt ceiling suspension bill the House approved on Wednesday withholds lawmakers’ pay if they don’t pass a fiscal 2014 budget resolution by April 15. Legislation that would extend the pay freeze for federal employees was introduced, briefly put on the House floor schedule, and then postponed. And then there’s the looming trio of threats that could affect the pay of federal employees: a debt default, sequestration, and the possibility of a government shutdown if Congress allows the current continuing resolution to expire.

Let’s recap how federal pay could fare under each possible scenario facing government employees this winter and spring:

• Debt Default: Congress is poised to temporarily suspend the current debt ceiling of $16.4 trillion, allowing the government to pay its obligations through May 18 and avoid a default for the next few months. The Senate likely will approve the House-passed measure, sending it to President Obama who won’t oppose the bill (though is not enthused about it). Obama said on Jan. 14 that federal paychecks were at risk if the debt ceiling was not raised and the government defaulted on its obligations. “We might not be able to pay our troops, or honor our contracts with small business owners,” Obama said during the press conference with reporters. “Food inspectors, air traffic controllers, specialists who track down loose nuclear material wouldn’t get their paychecks.”

  That could happen under a default at some point, but it’s not clear that it would happen, since the government has not faced a situation yet where it can’t pay its bills as a result of reaching the debt ceiling. If a default occurred, some say that the government would need to prioritize which bills to pay with the money it receives through tax revenue, although the Treasury Department questions whether it has the ability to pick and choose which payments it makes. Employee paychecks could be delayed and workers could be furloughed, depending on the length of the default, but it would not happen immediately and it might not happen at all.

  A 1995 Congressional Budget Office report put it this way, differentiating a government default from a shutdown due to a lack of appropriations: “Failing to raise the debt ceiling would not bring the government to a screeching halt the way that not passing an appropriations bill would,” the report said. “Employees would not be sent home, and checks would continue to be issued. If the Treasury was low on cash, however, there could be delays in honoring checks and disruptions in the normal flow of government services.”

• Sequestration: When Congress and the president signed off on the fiscal cliff package earlier this month, it included a provision delaying the automatic, across-the-board spending cuts scheduled to take effect on Jan. 2 until March 1. If sequestration occurs, that means the Defense Department and the rest of the government (except the Veterans Affairs Department) will have to cut between 8 and 10 percent in spending from their budgets between March and the end of fiscal 2013. So, what does this mean for federal pay?
  

  Well, a couple of things. Agencies across government likely will furlough employees at some point, though not immediately. The Office of Management and Budget has instructed agencies to use furloughs as a last resort. Furloughed employees do not receive pay and retroactive pay for the time they weren’t working is not guaranteed.

  Federal pay under a statutory pay system -- the General Schedule, for example -- is subject to spending cuts as are other administrative expenses within budgets. But the rates of pay for individual civilian and military employees cannot be reduced under sequestration. In other words, if an agency has to find more savings within its administrative accounts, which include employees’ salaries, then it can resort to furloughs or layoffs. But the agency can’t indiscriminately slash an employee’s rate of pay to save money.

  So if you aren’t furloughed, your pay is protected, but if you are furloughed, all bets are off. Layoffs are more expensive for agencies, so the odds are furloughs will be much more popular than reductions-in-force in the event of sequestration. And don’t forget, a furlough of more than 30 calendar days, or of more than 22 discontinuous work days, is considered an RIF, according to the Office of Personnel Management.

  President Obama has exempted service members’ jobs and pay from sequestration. For more on what is and isn’t protected under sequestration, check out this September Pay and Benefits column and this Congressional Research Service report.

• Government Shutdown: This scenario arguably poses the greatest risk to federal employees’ pay. If Congress does not appropriate funding for an agency or agencies, then non-excepted government operations must shut down. That means “non-essential” employees are furloughed. The last time the entire government shut down was in 1995 and 1996, for 27 days at an overall cost of $1.4 billion. Furloughed federal employees were paid retroactively for the time they were off the job. But it's up to Congress to decide whether to reimburse employees for the time lost, and lawmakers might not be disposed to do so during the current fiscal climate.
  

  The current continuing resolution keeping the government running expires March 27.

The mass transit subsidy benefit for commuters in 2013 is $245 per month. Previous news reports, including in Government Executive, reported the 2013 benefit was $240. It is $240 for 2012; Congress made the increase retroactive to Jan. 1, 2012 (in 2011 and 2012 the subsidy was $125 per month). Due to inflation, however, the 2013 benefit is $245 per month. Read the Internal Revenue Service guidance to employers on applying the retroactive portion of the benefit to employees.