Federal Employees News Digest

Expert: WH cancellation of fed pay raise a ‘burden for feds’

At the end of August, President Trump cancelled a 2.1 percent average pay raise, one that was slated to take effect for federal employees next year—drawing the ire of feds, their unions and many experts who see the move as not necessary and not useful to maintaining morale and recruiting for the federal workforce. As federal unions frequently note, in the wake of years of low (and sometimes no) pay increases, a congressionally-mandated boost in retirement contributions, and unpaid furlough days, even before this latest White House move, feds had suffered some $200 billion in compensation losses over the last 7 years. This week in FEND, Nathan Abse interviews one expert—and skeptic—of the raise cancellation, Richard Kogan—former Senior Advisor to the Office of Management and Budget and current Senior Fellow at the Center on Budget and Policy Priorities.

Q&A with Richard Kogan

Mr. Kogan, feds were on track to get a 2.1 percent pay increase—but with the president's action, barring a reversal, they will get none. Can you comment on the situation?

Kogan: Yes. Let’s take a closer look at what happened, and where we are now. First, there was a bill in play proposing a 1.9 percent raise in play. The raise was going to occur under the Senate text, specifically, in the Financial Services and General Appropriations bill. That was a bill that remains essentially “in conference,” still being negotiated between the House and Senate.

But, to date, the House proposal had no provision for that raise, you see? So, under the legal mechanics of this kind of situation, when there is no provision of law specified in an appropriations bill, then instead a kind of automatic pay raise is done under a formula, as many of your readers may know, related to the CPI, an index of inflation. Now that formula would be in play [and here that formula-driven raise would have been 2.1 percent]. The formula is what would happen, unless a sitting president, by Sept. 1, states an alternative—an alternative raise.

And, in that case, if there is no raise specified under an appropriations bill, and the presidential alternative is put forth, it’s that presidential alternative that prevails. In the current case, that percentage specified by the president is zero. And that is where we are today. Zero raise.

Could this situation, with no raise, change—could some action happen to change the situation?

Kogan: Yes, it could change. For instance, If Congress takes further action, and the Senate prevails in conference with the House—if the appropriations bill we discussed is enacted, and perhaps merged into what’s known as a “minibus” bill—at some point before Dec. 31, then the pay raise in the bill will prevail again. Why? Because then the enacted bill—as long as it is signed by the president—will supersede the earlier zero-raise action taken by the president.

That possibility sounds like good news for feds, that a raise could still happen—but it also sounds like there are a lot of uncertainties, and like there could be a lot of conflict here?

Kogan: Right, well, any of these scenarios becomes, in a sense, about a potential disagreement between the House and the Senate, and then a potential disagreement between Congress and the White House. And all that will have to play out in the political sphere.

Are there other possibilities than the ones you’ve outlined?

Kogan: Well, another likely possibility could be that the bill specifying the pay raise is not enacted before Sept. 30, and afterward the federal government could be working under a CR—a continuing resolution. Or even a government shutdown. Now, a continuing resolution would not normally specify a pay raise. So, in effect, if we end up stuck with a CR after Sept. 30, that would leave the same amount that the president specified in play. That is to say, feds will get no pay raise, under that CR scenario. Unless Congress took a very unusual step and specified a pay raise in a bill along with a CR.

That doesn’t sound encouraging for feds—after all we frequently see CRs in recent years, right?

Kogan: That’s right. And the CR situation could drag on for a long time. A lack of agreement on appropriations—between the House and Senate, and Congress and the President—could endure. Not just through Sept. 30, but straight through into December, and beyond.

To summarize, if the Senate bill ultimately passes, feds get a raise—but with a CR, they won’t, right?

Kogan: That’s correct. Again, an interesting issue is whether negotiations between Congress and the White House over getting beyond a CR might be resolved in December—or if uncertainty might drag on into the next spring—which has been common with a string of CRs in recent years. It’s become a normal way to continue the political arguments nowadays. But it is also a burden for feds in the sense that throughout that period of the CR, as I mentioned, under almost all scenarios feds would not get a pay raise. The federal civil service would be at a disadvantage under a CR—they would have a real advantage in getting something more than a CR passed, and the sooner the better.

Can you comment on the broader picture about labor and pay, in today’s economy?

Kogan: Beyond the mechanics here about federal pay that we’ve discussed, the latest census report about the U.S. economy more broadly notes that the median wage has increased, modestly. Now, on closer examination, because most of the recent growth in the size of the labor force has occurred at the lower-paid end, this phenomenon—of more [new or returning] low-paid workers entering the workforce—pushes the median pay boost downward. That is to say, the pay raise experienced by most people whose pay was analyzed last year probably saw bigger raises than the average reported in the newly-released figures. I’m trying to point out a couple of things. First, that workers, broadly speaking, probably saw a nominal increase—maybe not enough to cover inflation, but perhaps enough for some. And, with respect to your focus here—feds—that, second, the federal civil service, if they end up not getting a pay raise, essentially they will be the one notable group in the U.S. today that doesn’t.

So, your analysis buttresses union complaints: that a no-raise outcome would not be fair or in keeping with current compensation trends?

Kogan: Yes. To the extent feds feel singled out, I would say they have reason to feel singled out.

Generally, the modest pay increases provided to feds over most years act as a kind of equivalent to a COLA, right—so, without a modest pay increase, feds are losing, with respect to inflation?

Kogan: Yes, the modest pay raises that feds often get are kind of the equivalent to COLAs—whether or not these actually closely track the actual cost-of-living. Roughly speaking, yes. 

That means when a modest pay increase does not occur, that can be a problem for federal families, you would expect?

Kogan: I can judge, in part, from my situation. I’d like to mention that I am a former federal employee myself. I was a federal employee for about 30 years—and by the way, that means my pension is indexed to the CPI, to inflation. That is, I get COLAs. But now, with changes to federal compensation, we will have, going forward, former employees like me getting a small percentage increase each year, but meanwhile we will see newer employees not getting anything like that. So, one might ask, where’s the equity in that?

Can you discuss more broadly why even small percentage increases—or COLAs—are so important, and how inflation affects different people in different ways?

Kogan: Different people, living in different locations, and different people in different stages in life and situations, feel the effects of inflation in different ways. For instance, if you are older, you usually feel medical inflation much more acutely than if you are younger. If you are living in a high-rent city, then rent inflation, specifically, is more important than food inflation. So, the averages that are in play for adjustments are not always fine-tuned to each person’s or family’s situation. But it should be said that one of the benefits of the federal compensation system, when it works, is that some pretty good regional fine-tuning occurs. For instance, the 1.9 percent that we discussed that was in the Senate bill specifies a 1.5 percent raise across-the-board, added to another 0.5 percent to be distributed based upon locality inflation and costs, as specified under the law. Overall, then, that’s an average of a 1.9 percent raise, and to me that’s better, because it follows actual costs on the ground, than saying, “Everyone gets the same average, 1.9 percent, period.”

Are there other key federal compensation components, beyond retirement, that follow costs that way?

Kogan: Well, it’s also the case that the Federal Employee Health Benefits System—which, by the way, does a somewhat better job—because of the nature of managed competition [which FEHBP uses]—of restraining the growth rate of health insurance premiums than does the private sector. That’s particularly so, given the moves by this administration, frankly to sabotage some of the private-sector competition that’s taken place under the Affordable Care Act. Federal civil servants are better off in this regard—of controlled costs on insurance premiums—then, too.

How does federal compensation look overall, to you?

Kogan: It’s on average not so far off. Overall the Government Accountability Office—GAO—and the CBO have studied wages and benefits of fed civil servants. They find that on average they are comparable to those wages on average in the private sector. Now, you have to say they find that those at the lower end of the scale in the federal sector do somewhat better than, say, Wal-Mart or Amazon or the like, perhaps. And at the higher end, those who are, say, lawyers or budget analysts, and those sort of jobs—like myself—could get paid more in the private sector. But remember many of those at the higher end, they do these jobs out of a sense of duty and idealism, too—and that whole aspect of government work really is under attack.

If federal compensation is better at being fair or on average than the private sector, what does that say to you?

Kogan: I think you can reasonably say given the [growing] inequality in our society—even just looking at wages, and not even counting another big issue, that of the tax advantages and preference given to unearned income and to the wealthy—it’s the case that compensation in the federal government and state and local government as well, I believe, tends to diminish this, what I see as an inappropriate inequality. So that’s good.

Many workers complain about a lack of adequate pay raises. But some experts say that cheaper goods and services via globalization of trade more than makes up for the loss—your opinion?

Kogan: Some economists do make this argument, or used to. It is an argument, in essence, that globalization makes the wage inequality and related issues become something of a net wash for working people. I am not an expert on that, but from what I have read and understand, I am not convinced at all of this idea.

Again, many in the U.S. workforce complain of low pay or lack of raises—why have these become such an issue in so many jobs?

Kogan: That’s an excellent question, and I would refer you to others who have looked at this a lot more closely than I have.

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