Feb. 17 (Bloomberg) -- Congress is considering ways to cut U.S. federal workers’ pay, benefits and possibly their jobs even as a record number are borrowing against pensions.
Concern over the situation almost derailed a deal to extend the payroll tax cut this week as several lawmakers objected to a provision that would have required federal workers to contribute more to their pensions. In the end, negotiators agreed to target newly hired federal workers.
There’s more ahead, as moves to hold down government salaries mirror tightening at the state and local levels. Congress is considering extending a two-year federal pay freeze for another year, through 2013. Bills designed to reduce the federal workforce continue to be introduced. And another measure is pending that includes across-the-board requirements for more contributions to pensions.
“We are witnessing an unprecedented assault on public employees and federal employees in particular,” said U.S. Representative Gerald Connolly, a Democrat whose suburban Virginia district has one of the nation’s largest concentrations of government workers. “I am mortally offended on their behalf that they continue to be singled out for every sacrifice.”
Lawmakers in Maryland, home to more than 300,000 federal workers, have also joined the fight. Democratic Senator Ben Cardin and Democratic Representative Chris Van Hollen, whose district includes the Washington suburb of Bethesda, helped kill the initial pension provision in the payroll tax deal.
“We still strongly oppose the provision that raises $15 billion to help offset the cost of this package from future workers,” the two lawmakers said in a statement yesterday.
President Barack Obama called both Van Hollen and Cardin on the evening of Feb. 15 to press them to agree to a deal. Cardin said Obama assured him that federal employees’ salaries and benefits wouldn’t become a routine target.
“The president was pretty strong on his commitment to helping us make sure that doesn’t happen,” Cardin told reporters.
All told, there are about 4 million federal employees, according to Census data gathered by the National Treasury Employees Union. California, Virginia, Maryland and Texas have the highest numbers of workers; more than 80 percent are outside the Washington metropolitan area.
Federal figures show those employees and federal retirees may be in distress, even as the Federal Reserve Bank of New York says household indebtedness among the general population is declining. One in five participants in the federal thrift savings retirement plan, or a record 893,200 people, have loans against their accounts, according to the Federal Retirement Thrift Investment Board.
That shouldn’t be a surprise, said Julie Tagen, legislative director of the 300,000-member National Active and Retired Federal Employees Association in Alexandria, Virginia. Most federal workers make between $25,000 and $75,000 a year, and they are coping with a pay freeze, she said.
“Everyone forgets that federal employees have the same struggles that everyone else has, and they’re middle class,” Tagen said. “There’s a lot of hardship out there.”
State workers have been squeezed for years as local officials struggle with budget shortfalls and underfunded pensions. Thirty-three states have assets of less than 80 percent of what they need to pay out the benefits already promised to their workers, according to an annual study of pensions by Bloomberg Rankings.
While the federal government is also weighed down by deficits, what bothers Connolly about the current battles is that there is no obvious connection between the pieces of legislation, such as a payroll tax cut, and the money being sought to fund them. That’s different than a highway bill that assesses gas taxes on drivers using the roads.
“What is the nexus?” Connolly said in a telephone interview. “Republicans are afraid or unwilling to ask anybody else to make any kind of sacrifice.”
Federal employees aren’t helped by reports such as a recent one from the Congressional Budget Office that found federal workers’ salaries top those in the private sector. Republican presidential candidates, including former Massachusetts Governor Mitt Romney, point to the disparity while campaigning.
“People who are government servants, public servants, should not be paid more than the taxpayers who are paying for it,” Romney said during a Jan. 8 candidate debate.
There may be little sympathy for federal workers among the general public, where pensions with set benefits have become scarce and U.S. unemployment hovers at 8.3 percent. Studies of government salaries show benefits outpace the private sector.
The reports can be misleading, said James Horney, vice president of federal fiscal policy at the Center on Budget and Policy Priorities, a nonpartisan research institute in Washington. While less-educated workers have slightly higher salaries in federal jobs, better-educated employees are underpaid, he said.
“They clearly have decided this is a target to go after,” Horney said. If qualified people see too many cutbacks on the federal level, the government will have trouble finding highly skilled workers that can handle advanced scientific and information system work, he said.
“We’re going to have a very hard time attracting the kind of civil servants that we really want and need,” Horney said.
Advocates for federal employees are fighting back with letters, calls and plans to visit lawmakers. Tagen estimates that her group flooded Capitol Hill with more than 7,500 calls on Feb. 15 from all 50 states. She’s now focusing on getting members to attend town-hall meetings during the congressional recess over the Easter holiday.
Tagen said her main worry is that Congress and Obama will continue to look to federal employees to make more sacrifices. While Republicans are pushing most of the cutbacks now, Obama had proposed the two-year pay freeze, and savings from federal pensions were also in the budget plan released Feb. 13.
“They’re just looked at as an ATM machine,” Tagen said.
--With assistance from Michael McDonald in Boston, Greg Giroux and Alex Tanzi, Richard Rubin, Steven Sloan and Kathleen Hunter in Washington. Editors: Jodi Schneider, Jim Rubin.
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