Federal pay and benefits spared -- for now

The House and Senate debt proposals released Monday do not contain specific provisions targeting federal employees' pay or benefits, although such spending cuts likely will be part of future proposals, observers believe.

The plans, released by House Speaker John Boehner, R-Ohio, and Senate Majority Leader Harry Reid, D-Nev., both endorse trillions in spending cuts that would affect agency budgets, including Defense Department spending, over the next decade. Neither proposal includes tax increases or specific cuts to entitlement programs like Medicare.

"I am pleased that neither of the two latest proposals addressing the debt ceiling and fiscal deficit calls for immediate federal retirement cuts," National Treasury Employees Union President Colleen Kelley said in a statement. "They do both, however, call for significant cuts to agency funding levels, which would make it difficult to provide needed services."

The two plans would raise the debt ceiling, but for different periods of time. Boehner's proposal, known as the two-step plan, includes $1.2 trillion in spending cuts and directs a bipartisan congressional committee to produce another $1.8 trillion in cuts by the end of November. It would raise the debt ceiling by $1 trillion for the next six months, and directs Congress to vote again after that on whether to approve further borrowing authority. Reid's plan also includes $1.2 trillion in spending cuts, $100 billion in mandatory savings, and $1 trillion in savings from the end of the wars in Iraq and Afghanistan. It would extend the debt ceiling by $2.7 trillion through 2012. Both plans mandate the creation of a joint congressional committee to study deficit reduction and propose additional spending cuts. The GOP proposal also outlines a series of spending caps over the next decade and directs Congress to vote on a balanced budget amendment by the end of 2011.

The White House on Tuesday issued a statement of administration policy saying the president would veto the House plan if it reached his desk.

Any provisions that would modify the pay or benefits of federal employees likely would come out of the joint congressional committee's work. Most observers agree that government employees will have to sacrifice beyond the two-year pay freeze, either in the form of increased pension contributions, a further pay freeze, a hiring freeze, or some other cut to salaries and benefits. The question is when.

"I am concerned that provisions in the bill proposed by Speaker Boehner could lead to deep federal benefit cuts in the second-step process or through its sequestration/across-the-board cut provision," Kelley said. Sequestration refers to automatic spending cuts that would be triggered in the event that lawmakers exceed the amount of government spending previously agreed upon during the appropriations process.

In a recent interview, John Palguta, vice president for policy at the nonprofit Partnership for Public Service, said he did not believe congressional negotiators would include provisions to cut federal employees' pay or benefits in any deal designed to raise the debt ceiling. "My prediction is that we won't see those decisions made in the next month," he said earlier in July, adding that those proposals are still on the table and could be taken up again in the fall.

President Obama and Boehner spoke Monday night in national addresses about the debt ceiling negotiations and the deficit reduction plans under consideration. Neither specifically mentioned federal pay or benefits, but Obama warned of the government services that a default could interrupt. "If that happens, and we default, we would not have enough money to pay all of our bills -- bills that include monthly Social Security checks, veterans' benefits and the government contracts we've signed with thousands of businesses," Obama said. The Treasury Department has said the government will default on its obligations if the debt ceiling is not raised by the Aug. 2 deadline.

"The United States cannot default on its debt obligations," Boehner said in his speech. "The jobs and savings of too many Americans are at stake." Boehner also reiterated the importance of linking spending cuts and reforms to any increase in the debt limit.

There are several proposals on the table -- separate from the debt ceiling negotiations -- that would reduce federal employees' pay and benefits. Some are individual pieces of legislation; others are part of more comprehensive deficit reduction plans. For example, Sen. Tom Coburn, R-Okla., last week unveiled a $9 trillion deficit reduction plan that would extend the current civilian pay freeze, reduce leave benefits and trim the workforce in an effort to cut government spending. The proposal builds on a number of fiscal commission recommendations introduced late last year.

Last week, Congressional Budget Office Director Douglas Elmendorf outlined his ideas on restoring the federal budget to health, which could include less generous benefits for federal civilian and military retirees in addition to cuts in veterans' benefits.