How to read a news story

After the President’s self-described “shellacking” in the polls in early November, he decided to propose a federal employee pay freeze to, in the words of many, signal his intent to get serious about cutting the annual deficit. Here are the first two paragraphs from a USA Today report on this proposal:

President Obama proposed a two-year federal pay freeze Monday that may be as much about increased Republican power in Congress as it is about the size of the federal debt.

Obama said his proposal, which must be approved by Congress, would save $28 billion over five years — a tiny percentage of the total federal debt now pegged at $13.7 trillion.

Notice the two highlighted fragments – is it a two or a five-year pay freeze? And if it is a two-year freeze how do you have five years of savings? I’m glad you asked…

First off, let’s understand what is and is not being “frozen” – from the same USA Today article:

Chris Edwards, director of tax policy studies with the libertarian Cato Institute, said, “The pay freeze appears to apply only to cost-of-living adjustments, not the ‘step’ and ‘grade’ increases that federal workers receive on a regular basis. It also wouldn’t affect federal benefits.”

So, it is a Cost of Living Adjustment freeze – to understand what that means, we have to understand that federal employees, like many both union and non-union workers in the private sector have “time-in-job” pay raises that are set out on a salary scale, and each year every pay scale increases by a certain amount, typically based in part on the Cost of Living increases the previous year. It is that Cost of Living increase that is being frozen for two years under the President’s proposal, all federal employees would still benefit from any “time in job” raises earned over the next two years.

So that is what’s proposed as being frozen, but how can the President talk about 5 years of savings from a two year proposal? Well, the White House isn’t really explaining that, so you’ll have to indulge me as I speculate.

According to a Wall Street Journal article at the time of the announcement, the President’s proposed freeze would actually save $5 Billion over the proposed two years (the USA Today article only mentions the $28 Billion over 5 years number). In order to reconcile those numbers, one has to assume that the administration is compounding savings from each of the two years and counting that money as saved each year, and they are also projecting that if the pay freeze was somehow extended for another three years the total savings would be $28 Billion – but no one is proposing to freeze federal pay increases beyond the next two years (after the 2012 elections).

In fact, it seems reasonable that since the proposed federal worker pay freeze would (if enacted) expire right after the 2012 election, does anyone think that at least one Presidential candidate (if not both) will signal to the federal workers that not only will the Cost of Living increases resume, but there will be a “catch-up” component to make up for the last two years, nullifying much of the savings touted by the President? There is precedent for such actions, here in New Jersey we occasionally have budget stalemates which “shut down” all non-essential parts of the state government for a few days. During the few days leading up to the shutdown, as well as during the shutdown, the local news viewer is treated to an endless parade of “woe is me, I’m unemployed but I can’t collect unemployment, how will I feed my children, care for my elderly parents, keep my home, etc.” stories and then, as if by complete surprise, the first thing politicians do is grant every state employee full retro-active pay to compensate them for their time off the job.

In other words, for every dollar saved this year, the administration apparently wants it to count as a savings for every subsequent year that employee remains with the federal government – it’s that same unique federal logic that can claim a reduced increase in a budget line item is a “cut” because they planned on growing the line item by a greater amount (this is a popular argument from the left when a Republican occupies the White House, but both parties enjoy this twisted logic).

So, as you read news stories about the “projected savings” from this or that initiative or budget cut, keep an eye on what the actual cuts or proposal are, and look for conflicting timelines – this is a popular trick that I am sure we will see used over and over again during the 112th Congress and into the 2012 election.