THE PRESIDENT'S FISCAL YEAR 1995 BUDGET

THURSDAY, MARCH 3, 1994

HOUSE OF REPRESENTATIVES,

COMMITTEE ON POST OFFICE AND CIVIL SERVICE, SUBCOMMITTEE ON COMPENSATION AND EMPLOYEE BENEFITS,

Washington, DC. The subcommittee met, pursuant to call, at 10 a.m., in room 311, Cannon House Office Building, Hon. Eleanor Holmes Norton (chairman of the subcommittee) presiding.

Members present: Representatives Norton, Byrne, Morella.

MS. NORTON. Good morning. I'd like to open this morning's hearing on the President's budget.

The President has put a tough budget before the committee, but it reflects the contours set by the Omnibus Budget Reconciliation Act of 1993, which Congress passed last June. Once again, Federal employees and retirees are asked to shoulder enormous sacrifices, compared with other Americans.

Moreover, there is even less room than last year for the kind of compromise this subcommittee was able to fashion that saved locality pay, prevented the transfer of $688 million in health care premiums from the Government to enrollees, and prevented a 10-percent reduction in survivor annuity benefits.

In contrast, our option on pay this year consists-appears to be to use $1.1 billion to fund locality pay adjustments or to partially fund national pay adjustments or to do a combination of both. This budget also begins the process of funding the large unfunded civil service pension liability which should have begun years ago when budgets were not as tight.

Last year in Executive Order 12839 the administration's first presentation of downsizing assumed that 100,000 employees would move out of the Federal work force by attrition by the end of fiscal year 1995. The number of reductions projected in the new budget, however, is 118,000 employees, and there is still rank confusion about the starting date for counting the overall reduction of employees.

In any case, the administration abandoned the attrition approach when it became clear that attrition had slowed to a crawl. At the same time, the administration dramatically increased the goal for downsizing to 252,000 employees, a figure that was plausible only because the reductions were to be achieved by buying out employ

ees.

Incidentally, none of the figures put forward for reducing personnel has ever been explained functionally or managerially. The

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budget provisions before this subcommittee continue to assume buyouts of Federal employees.

Though this subcommittee and our full committee acted immediately upon receipt of the President's buyout bill, disagreement within the House kept the bill from moving to the floor before the last recess, and disagreement between the House and Senate has kept the bill from moving to conference. However, I am encouraged by actions underway in the Congress to move the matter forward at last.

I spoke by phone with Vice President Gore yesterday and appreciate that he has been personally involved as well. However, OPM itself has become the first casualty. On Tuesday 520 layoff notices were sent to OPM investigation and training employees. These notices were not an intended part of the downsizing process, but the OPM reductions in force if not withdrawn, will indeed be counted in the downsizing reductions.

Certainly, some of the OPM layoffs would have been unnecessary if buyouts had been possible. However unintentionally, these layoff notices have become the first visible manifestation of the reductions contemplated by Vice President Gore's reinvention of Government.

Chairman Frank McCloskey and I met Thursday with OPM Director Jim King and his staff. At the meeting, we discovered that in several instances OPM had delegated some of its authority to conduct personnel investigations to agencies who in turn contracted out this task to private businesses.

Private sector parties were performing under these delegations, while OPM was announcing RIF's. To be sure, Director King found the delegations in place when this administration came into office. To OPM's credit, King's predecessor tried to retrieve some of the delegations in 1992 when it became clear that there was a substantial dropoff in work and, thus, in OPM's revolving fund revenues from other agencies.

To our dismay, however, OPM retreated when the agencies objected. This is exactly the wrong response, and a poor showing of the kind of managerial foresight envisioned by Vice President Gore's National Performance Review.

In the 1980's the Federal Government acted as if it wanted to contract out the entire Government. Contracting out grew precipitously, creating an unaccountable monster that the OMB concedes is out of control. It simply is not fair to move to layoffs, nullification of raises, and other sacrifices from career employees while leaving contractors where they were, without so much as belt tightening.

That is what this budget does. There is procurement reform in this budget. However, there is no outward and visible sign of reforms that translate into reduced spending on outside Federal contractors. Civil servants who get layoff notices are visible, but contractors are part of an invisible government.

As I speak, we cannot be sure that, if we eliminate 252,000 employees, agencies will not replace some of them with contracted out employees. Contractors should be the first, not the last, to be asked to tighten belts that grew several sizes in the 1980's.

I would have preferred this morning to hear from the Government agencies, but OMB could not attend this week, and so we have moved to hear from employee organizations first. Therefore, I am pleased to welcome the national representatives of Federal employee unions and management associations, as well as the national organization representing retirees.

We will be pleased to receive your views at this time, but before I ask the first panel to come forward, I would like to ask my colleague if she has any opening statement. Ms. Byrne.

Ms. BYRNE. Madam Chairman, I would associate myself with your remarks. I do have a formal statement for the record and ask that it be entered.

Ms. NORTON. So ordered.

[The prepared statement of Hon. Leslie L. Byrne follows:]

PREPARED STATEMENT OF HON. LESLIE L. BYRNE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA

Madam Chairwoman: I'd like to thank you for holding this hearing today to discuss the president's fiscal 1995 budget request. I would also like to welcome our distinguished witnesses who can tell us how these provisions will affect the people who make our government run.

I think that the general atmosphere surrounding this year's budget as compared to last year's is sort of like the calm after a ferocious storm.

This time last year, we were faced with a budget that slashed benefits for federal employees and retirees at all levels, placing greater burdens on the federal work force than on virtually any other group.

Fortunately, this subcommittee, working in tandem with other like-minded members of both houses and both parties, brought some sanity and fairness to the federal work force provisions of the budget.

And later on in the year, when attempts were made on the House floor to deny federal employees and retirees the benefits which they rightly deserved, this subcommittee stood shoulder-to-shoulder against the proposal and helped to defeat it. This year's budget marks a pleasant departure in many respects from the plans of last year. In general, it avoids the temptation to achieve deficit reduction primarily on the backs of the federal work force.

I think that this subcommittee can take a good deal of credit for that, since we have demonstrated repeatedly that we will not tolerate attempts to take a pint of blood from the federal work force each time we need to cut spending.

However, the budget plan still falls short of our expectations in a number of respects, and it is the responsibility of this subcommittee to evaluate how these shortcomings will adversely affect efforts to create a top-flight federal work force.

I look forward to hearing from the witnesses about how the shortfall in pay proposed in the budget will impair the process of compensating federal employees at rates that match their counterparts in the private sector and how we can best allocate the funds provided for the federal work force.

I am also interested in hearing how the proposal to require agencies to pay the full government share of CSRS retirement benefits will affect employees who remain in that system, especially in terms of their ability to compete with employees in FERS for promotions and transfers.

Most of all, I would like the witnesses to talk about how the additional reduction of 18,000 full time equivalents over earlier plans to reduce the workforce by 100,000 positions in fiscal 1995 will reverberate throughout the work force.

I believe that it is quite troubling that while the president's budget calls for us to reduce the work force even more than what was proposed last year, Congress still has not provided agencies the means to achieve those reductions.

None of us want layoffs, and attrition clearly will not do the job, but with buyout legislation stalled, these are becoming the only options available to agencies that must downsize by next fall.

Already, OPM has indicated it must eliminate over 500 positions. I am afraid that the combination of increased pressure to downsize with the decreased possibility of buy-outs is placing agencies in a vise, where expensive and disruptive lay-offs become the only option.

Of course, the people who will get caught in that vise are the federal employees who have been left in limbo for over a year, not knowing what plans they will be

able to make for their futures. I am still hopeful that we can pass buy-outs and help agencies avoid layoffs, but I am afraid we are running out of time.

I hope we can use this hearing today and the one next week to discuss how calling for more reductions in the work force while neglecting the buy-outs hurts the work force and our goals to reform government.

Once again, I thank the Chairwoman for holding this hearing, and I look forward to hearing the witnesses' thoughts on this issue.

Ms. NORTON. We can move then to the first panel. I want to ask Mr. John Sturdivant, Mr. Robert Tobias, Ms. Sheila Velazco, Mr. James Sommerhauser, and Mr. Chris Sullivan to come forward.

I have been informed that Ms. Velazco has to leave early and, if it is all right with her colleagues, she may want to proceed first. STATEMENT OF SHEILA K. VELAZCO, PRESIDENT, NATIONAL FEDERATION OF FEDERAL EMPLOYEES, ACCOMPANIED BY JOHN N. STURDIVANT, PRESIDENT, AMERICAN FEDERATION OF GOVERNMENT EMPLOYEES; ROBERT M. TOBIAS, PRESIDENT, NATIONAL TREASURY EMPLOYEES UNION; JAMES E. SOMMERHAUSER, PRESIDENT, INTERNATIONAL FEDERATION OF PROFESSIONAL ENGINEERS; AND CHRIS SULLIVAN, LEGISLATIVE DIRECTOR, NATIONAL ASSOCIATION OF GOVERNMENT EMPLOYEES

Ms. VELAZCO. Good morning, Madam Chair and members of the subcommittee. I appreciate your willingness to allow me to do this

first.

On behalf of the National Federation of Federal Employees, I am pleased to be here to offer testimony on the impact of the administration's fiscal year 1995 proposal on Federal employees, and ask that my written testimony be entered into the record.

Ms. NORTON. So ordered.

Ms. VELAZCO. Before I begin, however, I would first like to express my thanks to you for all your tireless efforts during last year's budget battle. NFFE had hoped that during this year's budget process we would be facing a different scenario, but apparently that is not to be the case.

Last year, the administration proposed that Federal employees receive neither the national comparability increase nor the first installment of locality pay. Thankfully, through efforts of the members of this committee and others, we were able to salvage locality pay for 1994. Unfortunately, in order to offset the cost of funding locality pay, it was necessary for Congress to cut or delay other Federal employee benefits.

This year President Clinton's proposal for fiscal year 1995 recommends $1.1 billion for civilian employee pay raises. This would provide enough funds for only a 1.6-percent across-the-board raise for all civilian employees. Unfortunately, this proposal has the effect of reducing pay adjustments over the next 5 years by about 40 percent.

The fiscal year 1995 budget, however, does not mention whether this money should be distributed as a national pay raise, a locality pay raise, or a combination of the two. The administration has announced that it plans to consult with Federal employee unions regarding the best method of distributing the funds.

In effect, the administration has tossed a bag of money to Federal employee organizations and said, “Here, you go fight over it."

Now we do appreciate being involved in the process, but this is really not an appropriate way that we should operate.

NFFE believes that Federal employees should receive fully funded locality pay raises and the national comparability increases. Basic fairness dictates that this be done. Over the past 13 years Federal employees have shouldered a disproportionate share of the cost of deficit reduction. In fact, through cuts in Federal pay and benefits, Federal employees have "contributed" $163 billion to deficit reduction since 1981.

These tremendous cuts directly led to the development of a pay gap. Each time Federal employees were asked to "contribute," this gap between the Federal sector and the private sector widened, until eventually the public-private sector gap had ballooned to almost 30 percent.

After more than a decade of falling behind private sector salaries, the 1990 Federal Employees Pay Comparability Act promised that Federal pay would be brought up to par. The law was enacted only after Federal executives and political appointees received comparability pay of over 30 percent.

At that time, Federal employees were promised that they would no longer be forced to sacrifice their salaries in order to fund Government. The parties to the FEPCA agreement realized that cutting Federal salaries was counterproductive. While such cuts may have provided immediate monetary savings, they also cost the Government the ability to hire and retain the best and the brightest. FEPCA represented a compromise on the goal of comparability and also on the rate at which comparability would be achieved. Under FEPCA, Federal pay would reach only 95 percent of comparability, and it would do so gradually, over 9 years. According to the law, any deviation from this approach should be justified, must be justified, by the existence of either a national economic emergency or other serious economic conditions which affect the general welfare.

Currently, all major indicators point to sustained growth in the national economy. Obviously, the current economic climate does not justify setting aside the provisions of the FEPCA agreement.

NFFE, therefore, is opposed to any further attempt to derail the intent and the provisions of FEPCA. While NFFE supports the commitment of the Clinton administration and this Congress toward reducing the deficit, that support is predicated upon a deficit reduction plan that is based on fair, equitable sacrifice by all Americans.

The cuts currently being proposed would roll back the gains made by the passage of FEPCA and have Federal employees once again shoulder a disproportionate share of deficit reduction.

NFFE believes the solution to the dual concerns of Federal pay comparability and deficit reduction lies in reducing the level of contracting out. We believe that at a time when the structure and the size of the Federal work force is being reformed, a similar reform effort must be aimed at Federal contracting out practices.

Currently, the Federal Government spends $105 billion each year on contracting out. This has become the fastest growing area of Federal procurement. As you recently correctly stated, Madam Chair, Federal contractors have actually become a shadow govern