Multiple Budget Functions
Reduce the Annual Across-the-Board Adjustment for Federal Civilian Employees’ Pay
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
|Billions of Dollars||2017||2018||2019||2020||2021||2022||2023||2024||2025||2026||2017-2021||2017-2026|
|Change in Spending|
This option would take effect in January 2018.
About 20 percent of the savings displayed in the table reflect intragovernmental transfers and thus would not reduce the deficit.
Under the Federal Employees Pay Comparability Act of 1990 (FEPCA), most federal civilian employees receive a pay adjustment each January. As specified by that law, the size of the adjustment is set at the annual rate of increase of the employment cost index (ECI) for private industry wages and salaries minus 0.5 percentage points. The across-the-board increase as spelled out in FEPCA does not, however, always occur. The President can limit the size of the increase if he determines that a national emergency exists or that serious economic conditions call for such action. Similarly, the Congress can authorize an adjustment that differs from the one sought by the President. Each year since 2011, policymakers have either lowered the annual across-the-board adjustment for federal employees below the percentage specified in FEPCA or canceled it altogether.
This option would reduce the annual across-the-board adjustment specified in FEPCA by 0.5 percentage points each year from 2018 through 2026, meaning that for those years, the adjustment would equal the ECI growth rate minus one percentage point. Federal outlays would be reduced by $55 billion from 2018 through 2026, the Congressional Budget Office estimates.
One rationale for this option is that because compensation for federal civilian employees is a large share of discretionary spending (about 18 percent), reducing the annual across-the-board adjustment is a relatively straightforward way to substantially cut spending across agencies. In addition, those cuts may not significantly affect the agencies’ ability to retain employees in jobs that do not require a bachelor’s degree because those employees would probably still receive more compensation than similar workers in the private sector, on average. Another rationale for this option is that it would signal that the federal government and its workers were sharing in the sacrifices that many beneficiaries of federal programs have made or will have to make to help reduce the deficit.
An argument against this option is that it could make it more difficult for the federal government to recruit qualified employees, and that effect might be more pronounced for federal agencies that require workers with advanced degrees and professional skills. Recent research suggests that federal workers with professional and advanced degrees are paid less than their private-sector counterparts. Thus, smaller across-the-board increases in federal pay would widen the gap between federal and private-sector workers in jobs that require more education. For federal employees who are eligible to retire but have not done so, lowering the across-the-board increases could also reduce the incentive to continue working. If a significant number of those workers decided to retire as a result of smaller increases in pay, the increased retirement costs could offset some of the payroll savings produced by the policy change. (Because retirement costs fall under mandatory spending, the effects of increases in such costs are not included in the estimates shown here.)