Hiring Freezes Have Consequences – And So Do Budgets

President Trump’s hiring freeze has been in place since January 23, 2017. Judging by the emails, comments, calls and questions I am receiving, there are still agencies that have questions about what they can and cannot do during the freeze.

Add to that the uncertainty about the FY 2018 (and beyond) budget, and it is understandable that many federal employees worry that winter is coming for the federal workforce. President Trump’s Executive Order today directing OMB to come up with a plan for reorganizing the Executive Branch adds even more urgency to the discussion regarding the size of the workforce. After watching the goings on for the last 2 months, I am not ready to pronounce gloom and doom for the workforce, but I do believe federal agencies and the workforce are in for more change than they have experienced in the past several decades.

Let’s take a look at a few examples. The Department of Defense is on the list of favored agencies that are likely to receive a plus up from the budget process. In a typical year, Defense hired just over 90,000 people last year. With the freeze in place, they are continuing to hire in a lot of positions, but they are also building up a backlog of unfilled jobs. Other Departments are in the same position. Homeland Security has exempted many of its jobs because they are engaged in border security, immigration enforcement, and other national security related jobs. But what about the rest? Last year DHS hired almost 21,000 people. Other agencies that have few jobs that are tied directly to national security or public safety are continuing to amass a large backlog of unfilled jobs.

Trying to catch up after the freeze is lifted would be a big problem if the intent is to do some trimming of agency payrolls. In this case, it appears that the intent is to do more than trim. Rather than modest cuts that rein in the federal payroll, it appears the administration is interested in far more significant cuts. Recent reporting in the Washington Post, Fox News and other outlets is pointing to much larger cuts, with some agencies seeing double-digit reductions in their labor budgets.

So why am I not taking the gloom and doom view? Presidential budget requests are not enacted by the Congress with no changes. In fact, the reception the President’s budget gets from the House and Senate is typically rejection. The likelihood of the Congress enacting all of the cuts the President is suggesting and doing them all at once in 2018 is remote. Many of the agencies are very popular with the American people. Many of the programs they run are popular. Decimating popular programs and/or agencies can have electoral consequences that members of Congress do not want. That said, republican budget proposals in recent years have called for some significant cuts in non-Defense programs. I expect to see budget cuts in many agencies, but I expect them to be tempered by Congress.

So – does that mean agencies have no worries and do not need to prepare for the worst? Absolutely not. In fact, any responsible agency that is in the budget crosshairs should begin planning TODAY for a significant reduction in Fiscal 2018. Even agencies that may be safe from a mission perspective will have to look at the cost of mission support services. That means not adding new staff (even if the freeze is lifted) unless not hiring them risks mission failure. It means preparing a plan to do downsizing in an orderly way. Agencies should be running the numbers to see what kind of attrition they can expect. What would early retirement produce? Would buyouts help? If so, how much? Does the agency have the money in FY 2017 to incentivize turnover now, to lessen the burden on the 2018 budget?

Downsizing effectively is far more than just letting people go out the door and not replacing them, Agencies must rethink their work, their missions, and how they get things done. An agency with 10,000 employees cannot operate in exactly the same way if it has to make do with 9,000 employees. That means new organizations, new job descriptions, new performance objectives, better work processes, and more. All of that takes time.

Agencies should also begin planning for reduction in force. No one wants to hear that, but the truth is that few agencies are prepared to run a RIF. Getting ready takes months. Running the RIF takes months. Doing the right thing and trying to minimize the number of people who are involuntarily separated takes months. If agencies wait until a budget is passed, or at least until the numbers are more certain, they will box themselves into a corner that is almost impossible to get out of. As I said in a post on March 3, RIF is expensive and the aftermath of RIF is more expensive.

If agencies do decide to begin planning now for what might happen with the Fiscal 2018 budget, they are not selling out their workforce. They are doing the right thing and trying to be prepared for what might happen. That is what leaders do. Because it is so important, agency leaders should be upfront with their workforce about what they are doing. Do not plan behind closed doors, hoping the workforce will not find out about it and get scared. They will find out about it. And they are already scared. Federal employee should be treated like the adults they are. Planning for downsizing without telling the employees builds more fear and it builds mistrust. When an agency is facing tremendous change, more communication is not only better, it is absolutely essential.





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Shutdown: It Ain’t Over When It’s Over

With a few hopeful signs of movement on the budget/shutdown/debt ceiling/ front, I am hearing people talking about how quickly the shutdown can be turned off everyone can get back to work. As I have written before, some folks have the mistaken idea that the shutdown is like a toggle switch – just flip it off and everything will come back on. It is true that most employees can be brought back quickly. Agencies will contact employees via phone, email, radio, television and their web sites to get their employees back on the job. If it ended today, almost all federal employees could be back at work tomorrow. That should be the end of the shutdown story – right?

I wish that were true, but it is not. The repercussions of the shutdown will be felt for a long time to come. Here are just a few examples of how:

  • Year-end spending. Members of Congress and Administration officials always lament the annual “year-end spending spree” that occurs in many agencies. The year-end spending is driven by the fear of losing money if it is not obligated by the end of the fiscal year. The problem is far worse now than it was in the past because Congress is not passing appropriations bills on time. All 12 of the appropriations bills are supposed to be passed by October 1. That hasn’t happened in years. For fiscal 2014, we are likely to end up with a continuing resolution that funds the government at sequestration levels until January. Congress is supposed to pass full-year appropriations by then. Once the budget (most likely an ombibus appropriations bill or another continuing resolution) has passed, agencies will have to sort through their appropriations and then distribute the money to their component parts. That could easily take another month or two. Agencies may not have  a clear understanding of where they stand until March 2014. The uncertainty will make another year-end spending exercise almost unavoidable.
  • Combined Federal Campaign (CFC). Since its creation by President Kennedy in 1961, CFC has raised more than $7 billion for charities. CFC supports local, national and global causes and is one of the most successful fundraising campaigns ever. CFC contributions peaked $282.6 million in 2009 and have dropped each year since. Last year, CFC raised over $258 million. The 2013 campaign, beginning on September 1, 2013, had hoped to raise that much or more.  The decreasing CFC contributions, driven in part by the pay freeze and fed-bashing, are being felt by the charities that rely on CFC contributions. The 2013 campaign in DoD was suspended due to the shutdown. Other agencies have done the same. Although the campaigns will resume when shutdown ends, no one expects to see a massive outpouring of contributions from people who just got sent home without pay for a few weeks. Many smaller local organizations rely heavily on CFC and their programs and the people they serve are likely to suffer as a result.
  • Training. Many large-scale training programs in the government are run by centers/academies that have fully booked calendars. The time they have lost due to sequester can never be restored. For example, Homeland Security’s Federal Law Enforcement Training Center (FLETC) runs highly regarded law enforcement training programs that are used by much of the federal government. Many law enforcement professionals consider FLETC to be the “gold standard” for training. DHS shutdown planning guidance indicated only 61 of FLETC’s 1074 employees would be exempt from shutdown. That means training operations come to a halt. Students in residence at FLETC are returned to their homes and their training has to be rescheduled. Given the demand for FLETC training and the reduction in capacity caused by losing 2 – 3 weeks on the calendar, it is likely crucial training classes will be deferred for weeks or months. The loss of capacity and additional cost of transportation are casualties of the shutdown.
  • Recruiting. The federal government, like any other employer, experiences significant amounts of turnover every year. Even with the budget shrinking and numbers of federal employees dropping, data from OPM’s Fedscope reporting tool show the government is likely to hire almost 200,000 new employees in Fiscal 2014, just to replace people who are leaving. That number is a significant drop from the more than 309,000 in Fiscal 2009. Recruiting for federal jobs has been hard enough in the past few years, with potential hires routinely asking why they should go to work for a government that has not granted a general pay raise in 4 years. Shutdown politics are another strike against the federal government as an employer. Supporters of big government and small government alike agree that, whatever its size, the government should have talented employees.
  • Retention. The pay disruption, stress and uncertainty the shutdown caused will most like push more employees out of government. While there is a lot of attention paid to how it might affect those who are at or near retirement age, the potential effects on younger employees should not be ignored. Study after study tells us millenials do not expect to stay with an employer for an entire career. Combine that with the portability of the Thrift Savings Plan and the pay issues and it is reasonable to conclude younger employees will be likely to leave government in larger numbers. Losing highly experienced older workers and the up-and-comers who are the future of the federal workforce is a one-two punch that will have lasting effects on the government’s ability to have the right people for the job.
  • Contracts. Many businesses that have federal contracts have received “stop work” notices from contracting officers. They have to wait for another “start work” notice to be able to start work again. The disruption in work will directly affect schedules and will result in increased costs for the government.
  • Morale. Jack Moore has a great piece on FederalNewsRadio.com about the effects of the shutdown on morale. Nothing about the shutdown is motivating to federal workers. Given all of the research on the effects of morale and engagement on productivity and other key workplace measures, we should expect to see the shutdown dragging the workforce down for months or even years.
  • Scientific Research. The National Institutes of Health furloughed most of their employees. New clinical trials are not starting and new patients are not being accepted. Those with life-threatening illnesses are not getting care that may prolong or save their lives. Science Magazine has a new piece showing more lasting effects of the shutdown on research.
  • Housing. Bloomberg has an excellent piece outlining the effects of the shutdown on the housing market. The effects are driven by shutdown-driven delays in mortage approvals.
  • Adding to Backlogs. The shutdown stopped work in many agencies that already have backlogs of cases awaiting review and approval. The delays caused during the shutdown will extend far beyond because many cases are added to the pile awaiting review. Not only are those already in the queue being delayed, new cases will face a much longer queue.
  • Cost. Backpay for employees idled by the shutdown (800,000 employees off work for a week – 400,000 for another 8 days, at an average annual cost of $79,000 per employee) will exceed $2 billion. Agencies will not be given extra dollars to pay for it – it will come out of budgets that have already been squeezed by sequestration. Even in today’s inflated dollars, $2 billion is still folding money. The effects of losing that $2 billion will be felt by countless programs.

These are but a few examples of how shutdown damage will linger far beyond the day federal employees go back to work. Every agency in government will have its own collection of shutdown after effects. It may be months or years (or never) before the true cost and effects are known.