Obama’s pay freeze is a mere baby step

Joanne Butler Contributor
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President Obama must have taken magician lessons in his free time as a community organizer. His rollout last week of a two-year pay freeze for federal employees was a great example of a tricky sleight of hand; essentially, ‘ooh, look over here — a pay freeze!’ But he didn’t show us what was up his sleeve: something called ‘step increases’ (basically, longevity raises) that won’t be frozen. According to the Federal Times, about 75 percent of all federal employees will get a ‘step’ increase in salary during Obama’s so-called ‘pay freeze’ period.

Seems Obama’s pay ‘freeze’ is more like a pay ‘slushie.’ A bit frozen, but mostly not.

What we’ve got is a mere baby step in the march to reduce costly spending on federal pay. The upside is that it’s drawn attention to this often-overlooked contributor to the deficit. What could Congressional Republicans do to further decrease payroll costs?

Some Republicans, such as Rep. Jason Chaffetz, have called for a hiring freeze. Such actions, to my mind, have limited usefulness, as it’s often the lower-paid clerical employees (with higher turnover) who aren’t replaced during a freeze, and thus you have $90,000 employees running the copying machine and buying paper clips. And when the freeze thaws, hiring begins anew. So while a hiring freeze may be attractive in its simplicity, it doesn’t save that much money in the longer term.

Instead, I recommend a targeted strategy to encourage retirements, while not replacing the retiring employees. Due to longevity rewards (such as step increases), retirement-age feds are very expensive. Some are in low-impact or R.I.P. (Retired-In-Place) jobs, with little incentive to retire — unless they get a nudge.

In the past, the ‘nudge’ took the form of a retirement bonus — a ‘buy out.’ I think negative incentives would be more effective — and cheaper too. Here’s one suggestion:

Cut the payout for unused vacation time: Currently at retirement a fed will get a lump sum for his/her unused vacation time (‘annual leave’). A combination of generous federal leave policies plus gaming the system results in large payouts based on months of unused leave at a high salary level. If we limited the payout to one week of annual leave, there would be a stampede to retire before the limit kicked in. Hanging on to that R.I.P. job for another year would carry a high and very obvious price tag.

This nudge would result in two-fold savings — by not replacing those high-cost stampeding retirees plus shrinking the amount of money used in future years for the lump sum payments. But perhaps its greatest benefit would be cultural: strongly signaling that times in the federal work world have truly changed.

No doubt, federal employee unions will complain, but considering that feds also get a generous sick leave allowance, there is no reason why the government should be encouraging its senior employees to hoard their vacation time.

I realize that for most lawmakers, peeking under the rock of the federal payroll system is not sexy and doesn’t satisfy their craving for edgy soundbites. I say — go ahead, lift up that rock. Your work may not get you an interview on Fox News, but that shouldn’t matter. Remember that Reagan said that lawmakers derive their authority from the people, and as such “we have an obligation to make sure that in carrying out our responsibilities, we do so at a price they can afford.”

Joanne Butler is a senior economics fellow at the Caesar Rodney Institute of Delaware. You can email her at joanne-butler@comcast.net.