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Too Early to ‘Freak Out’ Over Federal Agency Funding Cuts?

May 2, 2017

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By Louis C. LaBrecque

Federal employees “shouldn’t be freaking out yet” over the large funding cuts that President Donald Trump wants for federal agencies—but there is cause for concern.

That’s from Jeff Neal, senior vice president at ICF and former chief human capital officer at the Department of Homeland Security. ICF is a management consulting company with more than 65 locations worldwide.

“There are some pretty significant reductions” for federal agencies in the “skinny budget” that the administration submitted to Congress in March, Neal told Bloomberg BNA in a recent interview. “But I don’t think it’s very likely that a large number” of federal workers will be forced out of their jobs, he said.

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Attrition Viewed as `Harmless’

A far more likely scenario, according to Neal, is that federal agencies will use attrition to reduce the size of their workforces.

Republicans in Congress for many years have floated attrition proposals, such as one that would call on federal agencies to hire only one new employee for every three who leave the agency.

“That’s generally viewed as a harmless way to downsize,” Neal said. But attrition “isn’t necessarily” harmless from the point of view of the agency, he said.

The problem with attrition, Neal said, is that federal agencies that use this tactic to cut their workforces don’t have any control over who leaves.

“If the agency has 10,000 employees and there are 500 [specific] employees I’d like to get rid of, they aren’t going anywhere” unless they happen to want to leave, he said.

Buyouts and “early outs”—early retirement offers for those who are eligible—give federal agencies more control over who leaves, provided that the offers are targeted to the divisions that the agency is seeking to downsize or eliminate, Neal said. However, agencies with large numbers of unionized employees will likely find that the unions are pushing to make buyouts and early outs available to as many people as possible rather than confining them to agency subcomponents, he said.

Time to Think About the Future

Cheri Cannon, a managing partner at Tully Rinckey PLLC in Washington who handles federal sector legal matters for the firm, told Bloomberg BNA that some agencies are preparing for steep budget cuts in fiscal year 2018.

The Environmental Protection Agency, which is offering buyouts and early outs to some employees, is among the most prominent of these, Cannon said.

At the EPA, eligible employees are being told to decide whether they want to accept a buyout or early out by no later than the Sept. 30 end of FY 2017.

It’s unusual for a federal agency to offer buyouts and early outs near the end of the fiscal year, Cannon noted, because it’s far more effective from the point of view of budget savings to offer incentives to employees early in the fiscal year.

“It’s most cost-effective to separate someone on Oct. 1,” which allows the agency to count the employee’s entire salary for the fiscal year as a cost saving, Cannon said.

The EPA apparently determined it would be worthwhile to use FY 2017 funds to reduce its future costs ahead of the budget cuts expected in FY 2018, she said. “They’re trying to go into the next budget cycle with a lower payroll,” Cannon said.

EPA employees would be foolish to ignore Trump’s budget blueprint, which called on the 15,000-person agency to cut 3,200 positions, Cannon said. That’s true even though Congress isn’t likely to go along with the full extent of the cuts sought by the administration, she said.

“People absolutely should be thinking about their futures,” Cannon said. “You never want to say that this is never going to pass,” she said of the possible EPA cuts.

`Brain Drain,’ Talent Stampede or Both?

Congress when it considers the FY 2018 budget may decide to eliminate specific federal programs at the EPA and other vulnerable agencies, Cannon said.

“If you don’t have a program, what do you do with the people?” she asked. Agencies in this situation generally seek to move employees to other programs that still have funding, she said.

If there are still too many employees, the next step for the agency likely would be to offer buyouts and early outs, Cannon said.

But buyouts and early outs can negatively affect agencies in different ways, she said.

Early outs are only available to federal employees with the required years of service, Cannon said. For this reason, the big risk of using early outs is that a large number of senior employees may retire at the same time.

“It’s a brain drain,” she said.

Buyouts can result in younger employees leaving agencies, which also isn’t ideal, Cannon said.

Buyouts—which are capped at $25,000 for federal agencies other than the Department of Defense, which can offer up to $40,000—may have appeal for some retirement-eligible employees who were ready to leave anyway. But the largest group of takers in some agencies may be younger employees with sought-after skills who have the best opportunities to find jobs outside of government, Cannon said. This is because those who accept buyouts have to pay back the money if they return to work for the government within five years.

Agencies that offer both incentives can lose both types of employees at the same time, she added. “You lose your young talent and your older, more seasoned veterans,” with negative results for short- and long-term agency productivity.

Problems With RIFs

If buyouts and early outs don’t take care of the excess employees, Cannon and Neal said, the next step may be reductions in force.

There are a number of problems with using RIFs, including that agencies are bound by four RIF factors for determining who stays and who goes, according to John Palguta, an adjunct professor at Georgetown University’s McCourt School of Public Policy and former vice president for policy at the Washington-based Partnership for Public Service.

The four factors are type of appointment (i.e., permanent appointments take precedence over temporary appointments), veterans’ preference, years of service and performance, Palguta said.

Performance essentially acts as a tie-breaker and therefore is the last factor considered in RIFs, making them less than ideal for an agency that wants to reshape its workforce in a positive way, he said.

“If you’re tied on the other factors and you’re both non-veterans, the person with the higher performance will stay,” Palguta said. Otherwise, the first three factors will determine who stays and who goes, he said. The exception is the DOD, which gives more weight to performance than other federal agencies, Palguta said.

Bump-and-retreat rights and pay and grade retention rules make RIFs even more hazardous, Neal said.

“You don’t save top earners’ salaries,” even if the agency cuts positions held by employees with higher salaries, he said. This is because grade and pay retention rules governing RIFs in the federal government mean that higher-graded employees who “bump” lower-graded employees with less seniority keep the same pay, at least initially, Neal said.

In the event of a RIF, he said, the higher-graded employee retains his or her grade for two years—and if the lower-graded employee has more seniority than someone at an even lower grade, that person can then bump or “retreat” to a lower-graded position.

Bumping is displacing an employee in a lower “retention subgroup,” Neal explained. For example, a career employee with veterans’ preference would bump a career employee without veterans’ preference. Retreating is displacing another employee in the same subgroup, he said.

After the two years are up for grade retention, pay retention rules kick in, Neal said. Although those moved to lower-graded positions in RIFs are now officially at their new position’s grade, they are entitled to keep their salaries. However, they get only half the annual pay raise offered to federal employees each January until their pay matches their grade, he said.

It can take “decades” for this to happen, Neal said. As a practical matter, it usually never happens—especially because employees moved to a lower grade are still eligible for promotions, he said.

`Agencies Have a Lot of Uncertainty’

Max Stier, president of the Partnership for Public Service, told Bloomberg BNA that workforce reductions may be the consequence, but should never be the goal, of federal budget cuts.

Federal agencies responding to budget cuts should be clear about their missions and make decisions based on continuing to meet mission goals, he said.

“Agencies have a lot of uncertainty” in the current environment, but they won’t face the very steep funding cuts specified in Trump’s budget, Stier said.

Congress has to approve agency funding cuts, Stier said. “The reality is that they will end up with more money,” he said.

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