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National Active and Retired Federal Employees

Association (NARFE) Budget Cut Threats

in the 112th Congress(2011-2012)

ByDan Adcock

Legislative Director

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Upcoming Budget Threats

Debt-Limit CompromiseSuper CommitteeAutomatic CutsBalanced Budget AmendmentPossible Gov’t Shutdown

Debt Limit Compromise Law

No cuts to federal retirement, pay or health benefits

Discretionary cuts could affect job security Creates 12-member “Super Committee”

$1.5 trillion in additional cuts

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Congressional Super Committee

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Members from the House

Members from the Senate

Rep. Jeb HensarlingR-Texas, Co-chair

Rep. Xavier BecerraD-California

Rep. Dave CampR-Michigan

Rep. James ClyburnD-South Carolina

Rep. Fred UptonR-Michigan

Rep. Chris Van HollenD-Maryland

Sen. Patty MurrayD-WashingtonCo-chair

Sen.Max BaucusD-Montana

Sen. John KerryD-Massachusetts

Sen. Jon KylR-Arizona

Sen. Rob PortmanR-Ohio

Sen. Pat ToomeyR-Pennsylvania

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Super Committee: Created by debt-limit compromise law Equally divided between Rs & Ds Required to pass bill to cut deficit by $1.5 trillion

Through spending cuts or revenue increases Once approved, immediate House & Senate consideration Up or down vote, no amendments allowed.

Must report deficit legislation by November 23 Congress must pass bill by December 23 President must sign into law by January 15

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• Super Committee Starting Point Fiscal Commission Report

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Fiscal Commission Recommendations: Shift growing share of FEHBP premiums to enrollees Lower federal retiree COLA through “Chained CPI” Significantly increase employee retirement

contributions Base federal annuities on highest 5 years of salary

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Spending Cuts and/or Revenue Increases

Co-Chair Sen. Patty Murray, D-WA$1 trillion in special interest breaks and

loopholes in tax code "We have to address both spending and

taxes." Co-Chair Rep. Jeb Hensarling, R-TX

Overhauling the tax code to reduce income tax rates

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What happens if deficit bill is not enacted by Jan. 15, 2012?

Across the board automatic reductions Also known as “Sequestration”

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Automatic across-the-board cuts:Sequestration

Like Gramm-Rudman-Hollings Lost federal annuity COLA in 1985

But, unlike Gramm-Rudman-Hollings Federal retirement, FEHBP & pay exempt

Social Security, military retirement also protected Medicare partially exempt

Cuts limited to 2 percent Cuts only to health providers and insurance carriers

Discretionary spending not protected Could affect federal employee job security

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Why There Could Be A Deal

Huge Discretionary Spending Cuts Including the Defense Department

Defense Secretary Leon Panetta Raising the specter of "doomsday" for the

military Congress could re-write sequestration law

Avoid cuts

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Balanced Budget Amendment Debt-limit compromise law requires

Vote on Balanced Budget Amendment before December 31

Once ratified, could: result in unprecedented cuts to fed programs

prevent payment of SS, fed civilian & mil retirement

Balanced Budget Amendment

H.J. Res. 1House Judiciary Committee passed in JuneCaps spending at 18 percent of GDP

Gross Domestic Product (GDP): Total market value of goods and services Federal spending is currently 24 percent of GDP

Percentage will fall when economy recovers Long-term, percentage will increase

o Retirement of baby boomerso Eventual increase in interest rates

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Balanced Budget Amendment

H.J. Res. 1Would likely require balanced budget by 2018What would be needed to achieve balance?

House-passed Budget Resolution -- NO $5.8 trillion in cuts over ten years

o$375 billion in federal retirement cutsDoes not achieve balanced budget until 2030

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Balanced Budget Amendment

What would be needed to achieve balance by 2018? RSC Alternative Budget Resolution -- ALMOST

$9 trillion in cuts over ten years Achieve balanced budget in 2020 Cuts non-defense discretionary spending by 70% Privatized Medicare Part B beneficiaries pay growing share of premium Increases Medicare eligibility age to 67 Increases Social Security eligibility age to 70

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Balanced Budget Amendment

SS, fed civilian & mil retirement limited to Tax revenue collected in same year Taxes provides the cash flow needed to

Redeem Treasury securities in Trust Funds Trust funds could only redeem Treasury securities to pay

benefits only:If the rest of the federal budget ran an offsetting surplus Or if 3/5 of Congress voted to allow deficit spending

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Social Security Trust Fund

What Happens to Your Social Security Contribution

Social Security Payroll Withholding

Tariffs & Import Duties

Personal Income Tax

Corporate Income TaxOil & Gas Revenue

Spectrum Auctions

What Happens to Your Social Security Contribution

Social Security Benefits Paid

Balanced Budget Amendment

Affect on Retirement Trust FundsOPM actuarial projections:

CSRDF will meet its obligations in perpetuity Despite CSRDF financial soundness: If Balanced Budget Amendment was ratified

Cash needed to redeem Treasury Securities in CSRDFo Need to pay federal civil service annuities

Would be limited to the amount of taxes collected in the same year

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H.J. Res 1, Balanced Budget Amendment Spending caps waived during war or certain military

actions 3/5 vote of House & Senate required to raise debt limit 2/3 vote of House & Senate required to increase taxes Ratification:

2/3 of House & Senate ¾ of States Past Attempt: 1997

Passed House One Vote Short in Senate

26 states would promptly ratify it, and more would likely follow.

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Balanced Budget Amendment

NARFE’s Position:We support efforts to balance the budget

Feds have contributed to this effort2 year pay freeze: $5 billion1980s-1990s COLA losses: $50 billionConstitutional amendment unnecessaryCongress already has authority to

control spending

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Budget Cut ThreatsQUESTIONS AND ANSWERS