Potential debt limit fallout paints bleak picture for feds, contractors

If Congress fails to raise the government's debt limit before the Aug. 2 deadline, the federal government would face an unprecedented situation.

For the most part, federal employees and contractors alike don’t know exactly how they would be affected by a debt default, and many feds won’t know until the last minute.

A survey of federal employees earlier this month by Government Executive magazine said agencies haven’t shared any information with employees.

More than 100 federal employees told Government Executive that they had not received guidance or communication from their agencies on how to “manage during a default and the potential effect it could have on their pay and benefits,” according to the July 15 report.

Related story:

Debt ceiling debate renews fears for feds

Reuters reported July 25 that Treasury Secretary Timothy Geithner and a team of aides have been working on contingency plans should Congress not succeed in raising the nation’s borrowing limit by the start of next month.

The Reuters article also presented steps President Barack Obama could consider – including selling some of the government’s assets, using the 14th Amendment or prioritizing payments – to manage the crisis.

“If Treasury decides that neither an asset sale nor the use of the 14th Amendment are workable, it could look at delaying some payments to recipients of government benefits, government employees, outside contractors or other parties to ensure it has enough cash on hand to keep paying interest on its debts,” the article said.

Recent events at some federal agencies have stoked feds’ fears about the consequences of no debt limit agreement.

Almost 4,000 employees at the Federal Aviation Administration were furloughed because Congress couldn’t reach an agreement that would keep them on the job, the Washington Post reported. And, the Social Security Administration announced it would close its field offices 30 minutes early beginning Aug. 15 because it can’t afford employee overtime.

“Federal employees have reason to worry that the present may foreshadow the future,” Joe Davidson wrote in the Post article.

Davidson also noted that 11 agencies have received authority from the Office of Personnel Management to offer buyouts and early retirement this fiscal year, and 15 agencies received the authority last year.

Stephen Losey of Federal Times also wrote about the potential for furloughs and partial shutdowns and summed up the debt limit scenario like this: “Nobody knows exactly what might happen, since the federal government has raised the debt ceiling in the past. But federal employees and retirees are almost certain to be losers.”