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Will OMB Finally Ask the Richest Federal Contractors to Also Make Sacrifices?

The Bureau of National Affairs (BNA)  recently ran a piece, by AFGE National President J. David Cox,  on  the union’s concerns that federal contractors have yet to pay their fair share in efforts to balance the  federal budget. Read the story below.

Will OMB Finally Ask the Richest Federal Contractors to Also Make Sacrifices?

J. David Cox, Sr.

J. David Cox, Sr., is the National President of the American Federation of Government Employees.

President Obama recently told federal employees that he would postpone an excessively modest fiscal year 2013 pay raise of 0.5 percent until at least April 2013. This would not be the first sacrifice federal employees have made during the Obama Administration to reduce the deficit. The current, unprecedented two-year federal pay freeze will produce $60 billion in savings over ten years. The Unemployment Insurance extension legislation enacted in January took another $15 billion from new federal and postal employees in increased pension contributions for a current total of $75 billion in savings over ten years. Whether the 2013 pay adjustment is the president’s proposed 0.5 percent raise or another freeze, the additional savings to the government will be $28-30 billion.

The total sacrifice by federal employees works out to at least $103-$105 billion over ten years. Of course, this does not include the massive downsizing in federal employment that we expect will result from the discretionary spending caps in the ruinous Budget Control Act. No other discrete group of Americans has been asked to sacrifice more than federal employees—whether they be Department of Veterans Affairs (DVA) nursing assistants who care for our wounded warriors, Border Patrol agents who guard our borders, depot workers who repair sophisticated military hardware, labor inspectors who keep our workplaces safe, or Social Security workers who ensure that our elderly receive the benefits they deserve.

No sacrifices, even remotely comparable, have been asked of contractors. Currently, contractors in the Department of Defense (DOD) can charge taxpayers up to $760,000 annually for the compensation of a single employee. For the non-DOD agencies, only the top five most lavishly compensated employees at a contractor are bound by that cap; all other contractor employees can be compensated in excess of the cap. Since 1998, the compensation cap applicable to government contracts has more than doubled, from an egregious $340,650 in 1998 to an unconscionable $693,951 in 2010, which was then raised to its current obscene level in April. Over the last dozen years, the level of taxpayer-reimbursement to contractors for their compensation has risen 53 percent faster than the rate of inflation. The April raise was a 10 percent increase for contractors—at the same time military personnel received a mere 1.7 percent pay raise and federal employees received none at all. Of course, contractors often actually make millions of dollars per year because their firms richly supplement the already generous compensation provided by taxpayers with fees and profits earned on federal contracts.

Overcompensation to contractors is even more outrageous from the standpoint of taxpayers. It has been reliably estimated that the imposition of a $200,000 cap on compensation to all federal service contractors would result in savings to taxpayers of more than $50 billion over ten years. In other words, taxpayers would still compensate contractors generously—as much as a cabinet secretary, including the Secretary of Defense or the Secretary of Homeland Security—without any reduction in services, but at a tremendous savings by rationalizing manifestly excessive compensation to the richest 1 percent of contractors during a time of severe austerity. Only in Washington, DC—where the policy-making process has been so corrupted by money and influence—could such a proposal not be quickly adopted. Despite heroic efforts by Representative Paul Tonko (D-NY), the House Rules Committee has declined to make in order his floor amendments to the defense authorization bill, both last year and this year, to more reasonably cap contractor compensation. And procedural obstacles have prevented Representative Tonko from offering such common-sense floor amendments to the last two defense appropriations bills.

Fortunately, the Senate has been more active. Senator Barbara Boxer (D-CA) offered a floor amendment to the FY 2012 Defense Authorization bill, which was accepted without any opposition, which would have capped annual taxpayer reimbursement for contractor compensation at $400,000. In the conference report, her amendment was significantly watered down. Ultimately, the cap was not reduced. However, it was extended to cover all DOD contractors, although scientists and engineers could be exempted from the cap, entirely at DOD’s discretion. Thanks to Senator Joe Manchin (D-WV), the FY 2013 defense authorization bill includes a provision that would cap compensation for defense contractors at $230,000. Thanks to Senator Richard Durbin (D-IL), the FY 2013 Financial Services Appropriations Bill would cap compensation for all contractors at $400,000. Both the Manchin and Durbin provisions would retain exemptions for contractor scientists and engineers. Given that many of the best and most accomplished scientists and engineers in the world work for the federal government for far more modest compensation, it is clear that the work performed by exempted contractor scientists and engineers should be seriously considered for insourcing. Nevertheless, the exemptions eliminate a key argument against the imposition of a more reasonable cap—that more modest taxpayer reimbursements would deny the federal government specialized services.

The House versions of the FY 2013 Defense Authorization and Financial Services Appropriations measures do not include provisions comparable to the Manchin and Durbin caps, so whether contractors will finally be required to sacrifice in the name of budget reduction will be decided by House-Senate conferences. The position taken by OMB will likely be determinative. Historically, OMB has sided with the top 1 percent of contractors, endorsing a cap for only the five most lavishly compensated employees at each firm, which would leave the vast majority of contractors completely uncapped. Will OMB continue to insist that the top 1 percent of service contractors essentially not be required to make any sacrifices towards balancing the budget; that thousands upon thousands of contractors may continue to charge taxpayers annually for hundreds of thousands of dollars in compensation; and that a DVA nursing assistant on the night shift who makes less than $35,000 annually, deserves no pay increase at the same time contractors have been given a 10 percent pay increase?

One Response

  1. Contractors travel also should be scrutinized. While the federal government travel is being slashed, contractors are traveling for months at a time to Hawaii and other exotic locations. My sister in law works for Northrop Grumman and counts on $25,000/yr additional income from her travel because she never spends her total per diem on these luxury trips.

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