BUDGET ‘OFFSETS’ MISS THE MARK ON WHO SHOULD PAY FOR HURRICANE KATRINA - September 27,2005

Use of funds reserved for federal employee and retiree programs to offset the enormous cost of federal aid to the victims of Hurricane Katrina harms those trying to help

Alexandria, VA (September 27,2005) – The Federal Managers Association rejects the recommendations of the Republican Study Committee to pay for the large sums of federal aid needed for the Hurricane Katrina relief and recovery effort by stripping health care and retention programs for federal retirees, employees and their families.

“I am speechless that the more than 40,000 federal employees and their families affected by Hurricane Katrina – plus the employees of Federal Emergency Management Agency, the Army Corps of Engineers and the Department of Defense who are working feverishly to bring normalcy back to the Gulf Coast – in addition to the scores of federal retirees would be the ones expected to pay for the federal aid being sent to the devastated region,” FMA National President Michael B. Styles said in response to the report. “This is not the message we want to send dedicated federal employees who have come to the rescue time and time again on behalf of the American people. In fact, I cannot imagine a worse way of thanking them for their efforts.”

According to a recent proposal by the Republican Study Committee, “Operation Offset” would use federal retiree benefits and other programs designed to maintain a strong civil workforce that responds to disasters like Hurricane Katrina to offset funding for the devastated Gulf Coast. The proposal states:

Base New Federal Retiree Health Benefits on Length of Service

Federal retirees are generally allowed to continue receiving benefits from the Federal Employees Health Benefits (FEHB) program if they have participated in the program during their last five years of service and are eligible to receive an immediate annuity. More than 80 percent of new retirees elect to continue health benefits. This option would reduce health benefits for new retirees who had relatively short federal careers, although it would preserve their right to participate in the FEHB program. This could make the government’s mix of compensation fairer and more efficient by improving the link between length of service and deferred compensation, and would also help bring federal benefits closer to those of private companies. Savings: $6.3 billion over ten years ($1.6 billion over five years)

Eliminate Subsidized Loans to Graduate Students

The federal government has extensive loan options for financing education. Students have likely had government help paying for college, if there was financial need. Graduate students make an informed 3 decision to invest in their own futures and should bare the costs of schooling, especially since private interest rates are currently low. This reform would allow federal higher education funding to be focused on college students while still allowing graduate students to benefit from unsubsidized federal loans. Savings: $8.6 billion over ten years ($4.2 billion over five years)

Update Formula Used for Federal Pensions from Three Years to Five Years

The government’s major retirement plans for civilian employees, the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS), provide initial benefits that are based on average salary during an employee’s three consecutive highest-earning years. Switching to a five-year average for new retirees would align federal practices with those in the private sector, which commonly uses five-year averages to calculate a worker’s base pension. Savings: $5.2 billion over ten years ($1.3 billion over five years)

“Congress has already approved $62.3 billion in relief aid,” Styles continued. “More appropriations requests are coming in to the tune of nearly $300 billion dollars needed today. There is no question the government’s pocketbook needs to be reigned in. However, the $20.1 billion estimated savings over ten years is a small fraction of the costs for Katrina, while coming at the great expense of active duty and retired federal employees and their families who count on receiving the promised benefits.”

As it stands, federal employees pay an average of 28 percent of their health insurance premium coverage, well above the national average for private-sector employees of roughly 20 percent. Federal Employees Health Benefits Program premium rates for Federal employees and retirees continue to skyrocket. Premiums rose an average of 9.5% in 1999; 9.3% in 2000; 10.5% in 2001; 13.3% in 2002; 11.1% in 2003; 10.6% in 2004; and 7.9% for 2005. What’s more, premium rates continue to rise for federal employees with OPM recently announcing an increase of 10 percent for fiscal year 2006.

Styles went on to say, “We have made considerable strides in the last few years to improve workforce flexibilities in the federal government in order to compete with the private sector and recruit and retain the most talented employees. To now try and chip away at those benefits at the very moment we are trying to modernize the Federal system would erase years of progress and bipartisan consensus in Congress. This is a misdirected effort by a group with a strong misunderstanding of the civil service.”