Furloughed U.S. Federal Workers Await Half-Sized Paycheck

Oct. 8 (Bloomberg) -- Mohamed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., talks about the partial U.S. government shutdown, debt-ceiling negotiations, and the implications of a default on global financial markets. Speaking with Tom Keene, Sara Eisen and Scarlet Fu on Bloomberg Television's "Surveillance," El-Erian also discusses the unrest in Egypt and Federal Reserve policy. (Source: Bloomberg)

For Jennifer Lukas-Jackson, a furloughed Justice Department attorney, the first government shutdown in 17 years is so far more of a concern than a crisis.

That could change in coming weeks.

The 42-year-old mother of two says she and her husband, a self-employed woodworker, are watching their spending as they wait for lawmakers to resolve the impasse. If the shutdown that began Oct. 1 lasts beyond a month, the couple will probably have to dip into savings to pay the bills, she said.

“Everything I’m doing while on furlough is stuff that doesn’t cost anything,” Lukas-Jackson said in an interview. “I think, ’Maybe I’ll paint this room.’ But I don’t want to spend 100 bucks on the primer and paint.”

For many furloughed federal employees, their Oct. 11 paychecks may be half their usual amount, and the last for a while. Many workers had already cut back after across-the-board budget reductions known as sequestration resulted in mandatory, unpaid leaves earlier this year.

The Office of Management and Budget said in a statement that the two-week paychecks for many civilian employees on Oct. 11 will reflect only the work they did in the last week of September, before the shutdown. Some employees are on a different pay cycle.

Photographer: Melissa Lyttle/Tampa Bay Times/Zuma Press

Pamela Burrell-Tomlinson, a medical technologist for the Department of Veteran Affairs, protests the government shutdown in the pouring rain on Oct. 7, 2013 in St. Petersburg, Florida. Close

Pamela Burrell-Tomlinson, a medical technologist for the Department of Veteran Affairs,... Read More

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Photographer: Melissa Lyttle/Tampa Bay Times/Zuma Press

Pamela Burrell-Tomlinson, a medical technologist for the Department of Veteran Affairs, protests the government shutdown in the pouring rain on Oct. 7, 2013 in St. Petersburg, Florida.

“Unless they are paid through funding sources other than annual appropriations, their pay will only cover 9/22-9/30, whether they are excepted or not,” OMB said in an e-mailed statement. The “excepted” workers are those whose jobs have been deemed necessary to protect life and property.

Defense Recalls

The shutdown sent about 800,000 federal workers home without pay last week. The Defense Department has since recalled most of the 350,000 civilian workers it put on furlough.

“It will be devastating if their paycheck is about half of what it usually is,” said Colleen Kelley, president of the National Treasury Employees Union, which represents about 150,000 federal workers. “Their mortgage isn’t cut in half -- their rent, their food, their utility bills aren’t cut in half. They are middle America. They are like most other Americans who live paycheck to paycheck.”

About 40 percent of the workers in the union are paid less than $50,000 a year, Kelley said.

Some workers took solace in the passage of a bill in the U.S. House of Representatives Oct. 5 to reimburse employees once they return to work. The measure, which President Barack Obama says he would sign, still has to get through the Senate. It has brought some peace of mind to workers, though worries remain about paying bills between now and the end of the impasse.

Photographer: Joshua Roberts/Bloomberg

The longer the shutdown lasts, the more impact to the economy as companies lose revenue from U.S. contracts, tourists cancel reservations to hotels near closed national parks, and federal workers are forced to live on less. Close

The longer the shutdown lasts, the more impact to the economy as companies lose revenue... Read More

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Photographer: Joshua Roberts/Bloomberg

The longer the shutdown lasts, the more impact to the economy as companies lose revenue from U.S. contracts, tourists cancel reservations to hotels near closed national parks, and federal workers are forced to live on less.

Back Pay

“It was a lot worse before the House vote for back pay,” said Dan Sobien, an emergency response meteorologist in Tampa, Florida, for the National Weather Service. “Right now, I don’t know when I’ll have money coming in. Back then, I didn’t know if I would have any money coming in.”

Shawnee Swinton, a furloughed civil rights investigator for the Department of Health and Human Services in New York, said she applied for unemployment benefits because she wasn’t sure when she would get her next paycheck.

“It does create hardship,” she said. “Right now it’s uncertain as to when federal employees will be returning to work.”

Swinton, 46, said she has a child in college and another in high school and that she helps pay for the care of an elderly grandmother. If she receives unemployment benefits, she would have to return it if she receives her accumulated pay at the end of the shutdown.

Northern Virginia

The longer the shutdown lasts, the more impact to the economy as companies lose revenue from U.S. contracts, tourists cancel reservations to hotels near closed national parks, and federal workers are forced to live on less.

Maryland, which has more than 145,000 federal workers, according to the Bureau of Labor Statistics, will lose about $51 million in tax revenue if the shutdown lasts two weeks. Most of that, about $42 million, would be recouped if workers are retroactively paid. The remainder is lost sales tax receipts, according to the state.

Sharon Bulova, the chairman of the Fairfax County Board of Supervisors in northern Virginia, said the shutdown and the sequestration are a “double whammy” to the Washington region, where about 373,000 federal workers live.

There were about 2.76 million federal civilian employees in 2012, including U.S. postal workers who aren’t affected by the shutdown, according to the U.S. Office of Personnel Management.

Fairfax forecast a slight increase in sales tax revenue when it fashioned its budget last spring. Instead, it has seen a decrease since fiscal year began in June, Bulova said. That means less money for schools, parks and public safety, she said.

GDP Impact

The Defense Department’s decision to bring back about 90 percent of the 350,000 civilian employees furloughed last week mitigates some of the shutdown’s impact, economists said.

The Pentagon was able to call the workers back after Obama signed legislation to pay uniformed service members during the shutdown. The Defense Department interpreted that bill as meaning it could call back support employees, as well.

The shutdown cost the economy $1.6 billion during the first week, IHS Inc. (IHS) analysts said. With Defense Department employees returning to work, the impact to gross domestic product falls to about $800 million this week, said Paul Edelstein, director of U.S. Financial Economics at IHS.

Even with retroactive pay, workers probably will be more cautious with spending, said Mark Zandi, chief economist of Moody’s Analytics Inc. in West Chester, Pennsylvania.

Impact Grows

“This won’t have a large economic impact if this is settled soon, but it will if it drags on through the end of the month,” he said.

In a note to investors, Zandi said the economic fallout of the shutdown has been limited so far. That could change if it extends through the end of the month. Economic activity could be reduced by as much as 1.5 percentage points in the fourth quarter, a reduction Zandi called significant.

Effects could escalate as more government contract workers feel the sting and companies that do business with the U.S. lose out on orders, said Alec Phillips, a Washington-based economist at Goldman Sachs Group Inc. (GS) in New York.

He said yesterday that at the shutdown’s start, before the Pentagon recalls, lost compensation would equal about $400 million a day.

“You have certain federal employees or their households that are cash-flow constrained, for the most part one would assume that the effect of a timing shift should be much smaller than a cancellation of pay,” Phillips said.

To contact the reporters on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net

Jeanna Smialek in Washington at jsmialek1@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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