Hidden disaster in new budget: Demonic plot to raid pensions

What you won't hear about this new deal: Public workers will get eviscerated, to achieve "deficit reduction"

Published December 11, 2013 7:45PM (EST)

Paul Ryan, John Boehner                                    (AP/J. Scott Applewhite)
Paul Ryan, John Boehner (AP/J. Scott Applewhite)

2013 has not been a pleasant year if you work for the federal government. You’ve been subject to pay freezes, furloughs and shutdowns. One of you got yelled at by a Tea Party Republican at the World War II memorial. And if Congress passes the budget deal announced Tuesday night by Rep. Paul Ryan and Sen. Patty Murray – a big if – you will get a final Christmas present: You’ll have to pay more into your pension, an effective wage cut that just adds to the $114 billion, with a "B," federal employees have already given back to the government in the name of deficit reduction.

The deal between House and Senate negotiators Ryan and Murray would reverse part of sequestration for 2014 and 2015, itself a major source of pain for federal workers. But negotiators want to pay for that relief in future years, with the overall package cutting the deficit by an additional $23 billion. And one of the major “pay-fors” is an increase in federal employee pension contributions. President Obama’s 2014 budget included such a proposal, which would have raised the employee contribution in three stages, from 0.8 percent of salary to 2 percent. Congress had already made this shift for new hires; the Obama proposal would affect all workers hired before 2012.

That proposed increased contribution translated to a 1.2 percent pay cut, and a total of around $20 billion in givebacks over 10 years. Negotiators were pressured by the powerful Maryland Democratic delegation, including Minority Leader Steny Hoyer, House Budget Committee ranking member Chris Van Hollen and Senate Appropriations Committee chairwoman Barbara Mikulski, into softening the blow on federal employees, many of whom live in their districts. According to Sen. Murray, the increase in contributions now equals about $6 billion over 10 years. But negotiators traded some of the cuts to federal employee pensions with different cuts to military pensions, also totaling $6 billion. So whatever the occupation, people who work for the government will bear the brunt of the pain.

A small pay cut doesn’t sound like much. But you have to add that to the pile of hits federal workers have taken over the past several years. Government pay has been frozen since January 2010. The only way you’ve gotten a raise over the last four years if you work for the government is if you received a promotion or a similar advance. The Congressional Budget Office estimates that this has reduced the purchasing power of a government salary by over 7 percent since 2010. The deal to avoid the government shutdown in October finally broke this fever with a 1 percent pay raise starting in January. This budget deal would wipe much of that out.

Pay freezes are just the beginning. In February, hundreds of thousands of federal workers were forced into unpaid furloughs in accordance with sequestration’s across-the-board budget cuts. In virtually every federal agency, workers had to take as many as 15 unpaid days off during the last fiscal year. Then, when the government shutdown occurred, workers were again sent home without knowing if they would ever get paid for the missed time. The lack of cash flow stressed workers and made it difficult to pay bills on time. Fortunately, Congress did provide back pay for the 6.6 million work days missed during the shutdown. However, that comes out of agency budgets, and workers have to still complete their tasks without the ability to hire additional personnel to make up the time.

The Federal Workers Alliance, a coalition of unions representing federal employees, estimated in a message to the budget negotiators that between the pay freeze and furloughs, federal employees have sacrificed $114 billion in pay cuts over the past three years, an average of over $50,000 per employee. Yet somehow, budget negotiators are going to the well again.

It’s notable that this attack targets public pensions, which have been under assault all over the country. Last week, a federal bankruptcy judge allowed Detroit to enter bankruptcy and impair pensions for city workers and retirees, and Illinois passed a sweeping law that would cut pensions significantly. Both of those states have constitutional protections preventing cuts to pensions, but no matter. Now, under the proposed budget deal, federal pensions would be subject to higher employee contributions. The Federal Workers Alliance notes that the average annual pension benefit for federal employees is just $12,800 per year. The proposed increased costs amount to close to hundreds of dollars a year in lost take-home pay without any increase to that meager benefit. Moreover, they represent a weakening of public pensions generally, at a time when the loss of pensions in the private sector, in favor of shaky 401(k)-style plans, has contributed to a retirement crisis. The threat to a dignified end of life is now coming to government workers, who explicitly forgo wages in exchange for the promise of a modest retirement benefit.

Sequestration in 2014 was scheduled to squeeze agency budgets even more. The budget cuts are larger, particularly on the military side. Cuts from 2013 sequestration have not been fully implemented, and agencies were able to shuffle around money to lessen the pain in ways that would not be available to them next year. All this means that a full sequestration in 2014 would have, in all likelihood, lead to layoffs. Now, just as Congress closes in on limited relief from sequestration, workers are told they’ll have to pay for some of that relief themselves.

You could probably find some federal workers to blame for the economic predicament in which we find ourselves, but those would be members of Congress. By contrast, federal employees, who inspect our food, work in veterans hospitals, investigate crimes at the FBI and generally ensure the smooth functioning of essential government services, have been blasted over and over again, as if their pay and benefits packages are a cookie jar to be repeatedly raided by Congress. This has led to terrible morale for federal workers, and a difficulty in finding and recruiting new talent. Federal retirements have risen as workers cash out rather than subject themselves to more stings. If you wanted to devalue the role of government from the inside out, what we’ve done to federal employees over the past few years would be the perfect blueprint.

President Obama just gave a speech highlighting inequality as “the defining challenge of our time.” If he signs a budget deal that knocks federal employees once again, he will have contributed to the continued hollowing out of the middle class, which after all is one of the biggest causes of inequality. If you cannot secure the promise of a decent living and an honest retirement even by working for the government, then there’s little hope that we can arrest this growing split between the ultra-rich and everybody else.

By David Dayen

David Dayen is a journalist who writes about economics and finance. He is the author of "Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud," winner of the Studs and Ida Terkel Prize, and coauthor of the book "Fat Cat: The Steve Mnuchin Story." He is an investigative fellow with In These Times and contributes to the Intercept, the New Republic and the Los Angeles Times. His work has also appeared in the Nation, the American Prospect, Vice, the Huffington Post and more. He has been a guest on MSNBC, CNN, Bloomberg, Al Jazeera, CNBC, NPR and Pacifica Radio. He lives in Los Angeles.

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Budget Congress Editor's Pick Inequality Labor Paul Ryan Pension Tea Party Wages Workers