Feds, contractors brace for debt-ceiling compromise

Federal employees and contractors are bracing for a long period of austerity under the debt-ceiling agreement that appears likely to pass Congress and gain President Barack Obama's signature.

Under the agreement, the debt ceiling would be raised immediately by $2.1 trillion, which would eliminate the need for further increases until 2013.

Meanwhile, a federal agency spending cap would result in $900 billion in savings over 10 years to affect all federal defense and nondefense agencies, while exempting most entitlement programs. A bipartisan board of lawmakers would aim to lay out a plan by late November for an additional $1.5 trillion in broader spending cuts, and enforcement mechanisms would be triggered if no plan is developed or Congress does not approve a plan by Dec. 23.

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Federal employee union officials cautiously supported the compromise in advance of Congress’ vote on the deal. The agreement is facing House and Senate votes on Aug. 1, just a day before the Aug. 2 deadline to avoid a default on the government's debt.

“The debt ceiling agreement reached last night will avoid what could have been an historic default by our government, and I am pleased to see that the deal does not include any immediate cuts to federal pay or pensions,” Colleen Kelley, national president of the National Treasury Employees Union, said in a statement.

“However, the impact on the federal workforce remains uncertain and agencies are likely to face reductions in their budgets. Those reductions (and additional cuts in November) will undoubtedly undermine services that the American people depend on,” Kelley said.

With federal agencies already strapped in their budgets, the $900 billion in savings may affect not only federal workforce pay, benefits and work conditions but could affect the employees' ability to carry out their agency missions to serve the public, said Tom Fox, vice president for leadership and innovation with the Partnership for Public Service, a nonprofit and nonpartisan group.

“It’s tough to say what the effect will be because the details are so sketchy,” Fox said on Aug. 1. “We do not know yet what sorts of proposals will occur and how they will impact on the employees’ personal lives. Just as important, there is real concern whether they will be able to fulfill all the priorities of their agencies.”

Federal contractors are likely to experience a downsizing in the stream of future work, according to Ray Bjorklund, senior vice president and chief knowledge officer at FedSources.

“It is one area of spending that is generally easy to control – just don’t award new contracts,” he said.

Contracting areas that seem likely to be on the table for cuts include trimming the use of professional services contracts, and consolidating or shutting down federal data centers. Both areas have been the subject of discussion on spending reductions, and are likely to continue to be targeted, he said.

“When there’s a lot of pressure to cut spending, it will accelerate the reality of cuts,” Bjorklund said.

According to the agreement, the $450 billion in savings to be generated from cuts to “defense” spending to cover the Defense Department, Homeland Security Department and State Department. At least one analyst predicts that the cap could actually protect defense from deeper cuts.

The cuts that may come from the debt deal may not be as drastic at those that have been on the table in the past, and a cap could prevent reductions that would otherwise be bigger, according to Dan Goure, vice president of the Lexington Institute nonprofit public-policy research organization.

One proposal in the debt deal protects against cutting defense spending for fiscal 2012 and 2013, instead taking away security spending in other areas such as foreign aid.

“This cap on cuts protects [defense spending] from predatory behavior some are proposing,” Goure said.

He predicts that although half of cuts may come from security spending, it won’t be a direct hit to DOD.

“There’s enough support for strong defense that defense spending won’t get 50-50,” or the entire half of cuts to security spending, Goure said. “It could be $400 billion or less.”

The Obama and the GOP leadership put together the package late on July 31 after weeks of partisan wrangling. Voting was tentatively scheduled in the House and Senate on Aug. 1, a day before Aug. 2 deadline to avoid a national default on U.S. Treasury debts.

While Congress has routinely voted to raise the debt ceiling during past administrations, GOP House majority leaders this time insisted on approving massive spending cuts as a condition for raising the ceiling.

The White House called the bipartisan deal “a win for the economy and budget discipline” and said it “removes the cloud of uncertainty over our economy at this critical time, by ensuring that no one will be able to use the threat of the nation’s first default now, or in only a few months, for political gain,” according to a White House fact sheet and statement on Aug. 1.

Republican House leadership also were promoting the compromise bill in congressional offices, saying it includes no tax hikes and “is largely consistent with the bill House Republicans passed earlier, and reflects the principles of cut, cap and balance.”

The deal exempts Social Security, Medicaid and several other entitlements from initial cuts, and sets up several scheduled enforcement “triggers” that potentially could allow for broader cuts or possibly tax increases, if various conditions are not met, according to a White House fact sheet on the deal. However, while there was language protecting Medicare beneficiaries, Medicare providers were not exempted from cuts.

“The president did not agree to any entitlement reforms outside of the context of a bipartisan committee process where tax reform will be on the table and the president will insist on shared sacrifice from the most well-off and those with the most indefensible tax breaks,” the White House said.