Possible Impact of Automatic Spending Cuts/Sequester


12/10/12: Automatic spending cuts, known as sequestration, which could go into effect on January 2, 2013, if Congress and the White House do not agree on a way to prevent them, would not have the same impact as a government shutdown due to lack of appropriations.  When there is an appropriations lapse, agencies, with limited exceptions, are prohibited from spending money, so nonessential employees are directed not to report for work and whether they receive back pay for days missed turns on whether Congress passes specific legislation to compensate them.

Under sequestration, by contrast, agencies would be required to cut each of their program accounts by an equal amount, roughly 8 to 9 percent of their annual budget. For federal employees, the most relevant cuts would be to salaries and expense accounts. Federal retirement benefits and individual pay rates would not be reduced by a sequester. Salaries and expense accounts could be reduced in a number of ways, including hiring freezes, unpaid furloughs, or RIFs.  We have not received specific information from the SEC about how it might implement such cuts, which would amount to more than $100 million from the agency's current budget.

Since many employees will be taking annual leave for the holidays soon, with some not planning to return until the New Year, we know that many of you are concerned about whether we might face immediate furloughs or other actions if the sequester goes into effect on January 2nd. The Union has reached out to the SEC's Office of Human Resources, both to learn what planning is already occurring at the SEC, and also to inform the agency of the concerns of frontline staff. OHR has refused, however, to communicate with the employees' Union representatives about sequestration.

While there is no guarantee, we currently believe that it is very unlikely that drastic actions such as furloughs or RIFs would be implemented immediately if sequestration occurs. The savings required by the sequester need to total 8 to 9 percent of agencies’ annual budgets, so some cuts could be put off until later in the year, especially if it appears that an agreement to cancel the sequester is within sight. And NTEU would push to ensure that our statutory and contractual rights were honored even in the unlikely event that actions such as furloughs or RIFs were proposed.

At the SEC, the size of the cut would still leave the agency with a budget that is much higher than it was just a year ago in FY 2011. We believe that, despite the agency's refusal to communicate with the Union about these issues, it will be unnecessary for the SEC to consider a furlough or RIF in the event of sequestration.

We continue to hope that Congress and the administration will reach an agreement to avoid the fiscal cliff, including sequestration, before January. NTEU is continuing to fight hard to ensure that further cuts to federal employees will not be included in any agreement. We will keep you updated with any developments on these issues as they occur.