Boehner to Be Paid as Soldiers Wait If Government Closes

House Speaker John Boehner
House Speaker John Boehner, a Republican from Ohio, speaks during a news conference in Washington, D.C. on April 7, 2011. Photographer: Andrew Harrer/Bloomberg

As tomorrow night’s deadline for avoiding a government shutdown nears, about 800,000 “non-essential” federal workers face the prospect of getting no pay at all for time lost to the political impasse.

Elected officials, including Republican House Speaker John Boehner, Democratic Senate Majority Leader Harry Reid and President Barack Obama, all would be paid as usual during a shutdown, unless Congress changes the law. Soldiers, law enforcement officers and other government employees whose jobs are deemed essential would continue to work yet wouldn’t get paychecks until the budget standoff is resolved.

Workers furloughed as non-essential, however, aren’t guaranteed that they’ll be paid at all for time off when the government closes for business. While they’ve ultimately received back pay after previous shutdowns, it’s up to Congress to “determine whether ‘non-excepted’ employees receive pay for the furlough period,” according to a U.S. Office of Personnel Management website providing guidance and information on furloughs.

“It is unknown whether legislation will ultimately be passed” to make up lost pay, says a sample letter to non-essential employees prepared by the Committee on House Administration. “We wish that we could provide you with more guidance on this issue but, due to the fluid nature of the situation, we cannot.”

A ‘Non-Starter’

The Republican-controlled U.S. House approved a stopgap spending bill today to keep the government open through next week. Obama said he’d veto the measure, which would cut an additional $12 billion in spending this year and fund the Pentagon at current levels through Sept. 30. Reid called the bill a “nonstarter.”

Boehner and Reid returned to the White House this afternoon for negotiations that didn’t produce an agreement. The government’s current spending authority is set to expire at midnight tomorrow.

“A shutdown could have real effects on everyday Americans,” Obama said late last night at the White House after a meeting where Boehner and Reid failed to reach an agreement.

“It means that hundreds of thousands of workers across the country suddenly are without a paycheck. Their families are counting on them being able to go to work and do a good job.”

Docking Pay

The Senate has passed a measure to dock the pay of lawmakers for the duration of a shutdown. A House measure, part of the largely symbolic Prevention of Government Shutdown Act approved last week, would dock the pay of the president in addition to members of Congress. Neither proposal has taken effect.

Members of Congress “shouldn’t be getting paid, just like federal employees shouldn’t be getting paid” during a shutdown, Boehner said today on ABC’s “Good Morning America.”

Freshman Democratic Senator Joe Manchin, of West Virginia, said in a statement on his website that he would forgo his salary during a government shutdown and challenged colleagues to do the same thing.

“The bottom line is this: I can’t imagine that the president, vice president or any member of Congress --Republican or Democrat -- thinks they should get paid when the government has shut down,” Manchin said.

Democrats’ View

Democrats haven’t called for a government shutdown.

“The same people who are insisting on the riders are the people saying, ‘We don’t care if the government shuts down,’” said Senator Charles Schumer, a Democrat from New York, referring to so-called policy riders that Republicans insist on including in a spending bill. “You haven’t had, I don’t think, a Democratic elected official saying a government shutdown is a good thing.”

Some House Republicans, particularly those aligned with the Tea Party, have said closing the government was preferable to an agreement that didn’t meet their demands for cuts.

Among them, there are signs that view is softening, said Alabama Republican Representative Mike Rogers.

“You can really see this week a lot of the freshman evolving and growing” and “maturing,” he said yesterday. “There’s three levers that make laws -- we just have one of the three. That’s just the way it is. The Senate’s got one, the president’s got one -- they’re starting to get it.”

He said the release of House Budget Committee Chairman Paul Ryan’s fiscal plan, calling for $6 trillion in cuts, “helps a lot of the freshmen see the bigger picture.”

Still, the political drama hasn’t disrupted a prevailing calm in financial markets.

Market Reaction

Bond yields in the U.S. are lower now than when the government was running a budget surplus a decade ago even though Treasury Department data show that the amount of marketable debt outstanding has risen to $9.13 trillion from $4.34 trillion in mid-2007.

The yield on the benchmark 10-year Treasury note was at 3.55 percent today, below the average of 7 percent since 1980 and compared with the average of 5.48 percent in the 1998 through 2001 period, according to Bloomberg Bond Trader prices.

Bond prices reflect expectations that lawmakers will resolve differences over the budget and avoid a crisis of confidence in U.S. assets, said John Lonski, chief economist at Moody’s Capital Markets Group.

“I just don’t see where that is exerting much influence over the pricing of financial assets,” Lonski said in a telephone interview from his New York office. Investors foresee that “when you come to the edge of the precipice, a more rational approach should prevail,” he said.

U.S. Creditworthiness

Derivatives tied to U.S. government debt show investor perceptions of America’s creditworthiness are improving.

Credit-default swaps on Treasuries stood 40.9 basis points as of 10:53 a.m. in New York, according to data provider CMA. The swaps are down from this year’s high of 51.5 basis points on Jan. 27 and last year’s high of 59.7 in February. The price levels are the seventh-lowest of 51 sovereign debt markets tracked by Bloomberg and CMA.

Low borrowing costs mean the U.S. is spending less to service its debt as a percentage of gross domestic product. Interest expense was 2.7 percent of GDP in fiscal 2010 ended Sept. 30, down from 3.8 percent in 2001, the last time the U.S. had a budget surplus, according to data compiled by Bloomberg.

The budget shortfall is also failing to drive foreign investors away from U.S. financial assets or the dollar.

The class of investors that includes foreign central banks purchased 60 percent of the $66 billion in benchmark 10-year U.S. notes sold this year, up from 42 percent in 2010, according to the Treasury Department. Foreign investors owned $4.45 trillion of Treasuries as of January, up from $3.7 trillion a year earlier, according to the latest government data.

Global Reserves

The dollar’s share of global currency reserves stood at 61.4 percent at the end of 2010, little changed from 61.5 percent in 2009, the International Monetary Fund in Washington said March 31. The euro’s share dipped to 26.3 percent from 27.9 percent.

Consumer confidence in the U.S. rose for a second consecutive week as an improving job market helped ease the burden of higher fuel costs. The Bloomberg Consumer Comfort Index climbed to minus 44.5 in the period ended April 3 from minus 46.9 the previous week.

In Washington, the shutdown has specific costs. The cost of back pay for furloughed government workers would be $174 million for each day the government is closed, according to data compiled by Bloomberg Government analyst Scott Anchin.

Wait for Paychecks

Unlike the president and legislators, military personnel and essential federal employees who stay on the job would have to wait until government spending authority is restored to get salaries and wages.

“Agencies will incur obligations to pay for services performed by excepted employees during a lapse in appropriations,” according to the website.

There is no guarantee that Congress would make furloughed workers whole. It is possible they will be eligible for unemployment compensation, though it depends on state requirements, the website says. “Some states require a 1-week waiting period before an individual qualifies for payments,” it says.

The Obama administration supports compensating furloughed employees with back pay and is encouraging Congress to allow for that, said Jeffrey Zients, deputy director of the Office of Management and Budget.

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