Federal Sector Anxiety

on September 06, 2011 at 9:01 AM

This August was a little different than most in Washington and not just because of earthquakes and hurricanes. The anxiety surrounding the federal sector is palpable after a year marked by spending debates that nearly shutdown the government in April and took the country to the brink of default in early August.

The writing is on the wall that the era of growth in the federal sector is ending. Executive Branch agencies have prepared plans and, in some cases, executed plans to begin leaning down. The U.S. Post Office, the U.S. Army, and the National Aeronautics and Space Administration, among other agencies, have announced workforce reductions. Federal sector reductions, however, need to be kept in perspective.

So far the scale of the reductions to discretionary spending, which is the direct spending by federal agencies on domestic and defense programs, is painful, but manageable. The President’s request for discretionary spending for the coming fiscal year is $1.3 trillion, including the wars.

According to the Congressional Budget Office, the discretionary spending cap included in the recent debt-ceiling agreement is only a $25 billion lower than the request for the fiscal year beginning this October 1. While the spending caps do cut more deeply into discretionary spending later on this decade, the near-term looks more like retrenchment than dismantlement.

Of course, there is no crystal ball to forecast the future. The discretionary reductions could go deeper in Congress this fall. The Super Committee established under the debt ceiling agreement has been tasked to find another $1.5 trillion of overall reductions to federal spending over the next decade by Thanksgiving. Yet, discretionary spending is only one aspect of the next round of negotiations. Revenue and mandatory spending, which were not touched in the recent debt ceiling agreement, could be part of the solution, meaning discretionary spending could still be spared a doomsday scenario.

There are a few things to consider before jumping to conclusions about federal sector reductions.

First, announcements about reductions should be read carefully as they are often extended over a period of years and addressed through normal attrition and efficiencies. For instance, most agencies experience a rate of at least 5% of voluntary personnel separations annually. Thus, constrained hiring alone can reduce the size of the federal workforce without forcing involuntary separations.

Second, the completion of projects and programs in a given year creates budget space for new projects even in a constrained environment. The completion of a construction project one year, for example, can create budget space for new work the following year. Similarly, contracts that are not renewed one year may be part of a contract consolidation or restructuring efforts that can still result in new opportunities.

Finally, the actual implementation of reductions will be uneven across agencies. Some agencies will be hit hard. Others will be spared. Some agencies will spread reductions evenly across all programs; others will eliminate entire programs to keep other programs funded and manned at near current levels. It is very difficult to speculate who is safe and who is vulnerable up until an agency announces a specific implementation plan.

There is no doubt landscape of the federal sector is likely to change dramatically. It is just too early to tell, however, what this change is going to look like in terms of specific agencies, programs, and workforce. The next few months should provide some clarity. Election year politics and spending battles should determine whether the anxiety surrounding the federal sector is overblown or likely to become a full-blown anxiety attack.

James Windle is a federal employee who has worked for executive branch agencies, the Executive Office of the President, and Congress. The views and opinions of the writer are his solely and are independent from the United States Government.