National Active and Retired Federal Employees Association (NARFE) Budget Cut Threats

1. National Active and Retired Federal Employees Association (NARFE) Budget Cut Threats in the 112th Congress (2011-2012) By Dan Adcock Legislative Director

2. Upcoming Budget Threats • Debt-Limit Compromise • Super Committee • Automatic Cuts • Balanced Budget Amendment • Possible Gov’t Shutdown

3. 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

4. Congressional Super Committee Members from the House Rep. Jeb Hensarling R-Texas, Co-chair Rep. Xavier Becerra D-California Rep. Dave Camp R-Michigan Rep. James Clyburn D-South Carolina Rep. Fred Upton R-Michigan Rep. Chris Van Hollen D-Maryland Members from the Senate Sen. Patty Murray D-Washington Co-chair Sen.Max Baucus D-Montana Sen. John Kerry D-Massachusetts Sen. Jon Kyl R-Arizona Sen. Rob Portman R-Ohio Sen. Pat Toomey R-Pennsylvania

5. 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

6. Super Committee Starting Point • Fiscal Commission Report

7. 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

8. 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 8

9. What happens if deficit bill is not enacted by Jan. 15, 2012? • Across the board automatic reductions • Also known as “Sequestration”

10. 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

11. 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 11

12. 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

13. Balanced Budget Amendment • H.J. Res. 1 • House Judiciary Committee passed in June • Caps 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 • Retirement of baby boomers • Eventual increase in interest rates

14. Balanced Budget Amendment • H.J. Res. 1 • Would likely require balanced budget by 2018 • What would be needed to achieve balance? • House-passed Budget Resolution -- NO • $5.8 trillion in cuts over ten years • $375 billion in federal retirement cuts • Does not achieve balanced budget until 2030

15. 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

16. 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

17. Social Security Trust Fund

18. What Happens to Your Social Security Contribution Spectrum Auctions Personal Income Tax Social Security Payroll Withholding Corporate Income Tax Oil & Gas Revenue Tariffs & Import Duties

19. What Happens to Your Social Security Contribution

20. Social Security Benefits Paid

21. Balanced Budget Amendment • Affect on Retirement Trust Funds • OPM 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 CSRDF • Need to pay federal civil service annuities • Would be limited to the amount of taxes collected in the same year

22. 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.

23. Balanced Budget Amendment • NARFE’s Position: • We support efforts to balance the budget • Feds have contributed to this effort • 2 year pay freeze: $5 billion • 1980s-1990s COLA losses: $50 billion • Constitutional amendment unnecessary • Congress already has authority to control spending

24. Budget Cut Threats QUESTIONS AND ANSWERS