House Passes Retroactive Pay Bill for Furloughed Workers

The partial shutdown of the U.S. government entered its sixth day with no signs of a breakthrough as House lawmakers yesterday passed a bill to eventually reimburse furloughed federal workers for lost pay.

The measure, which passed 407-0, was part of an effort to “ease the pain” of the first shutdown since 1996, said House Majority Leader Eric Cantor of Virginia. He and fellow Republican leaders called on President Barack Obama and Senate Democrats to negotiate on a spending bill.

“He’s here this weekend, we are here this weekend,” Representative Kevin McCarthy of California, the No. 3 Republican in the House, told reporters yesterday, saying Obama canceled an Asia trip because of the shutdown. “This can all end.”

The government shutdown has furloughed about 800,000 federal employees and is becoming a prolonged impasse that is merging with the debate over raising the U.S. debt ceiling.

The U.S. Defense Department said yesterday it would call back most of its 400,000 furloughed workers. Defense Secretary Chuck Hagel said legislation signed by Obama, which ensures service members are paid on time, allows the military to call back civilian employees. About half of all furloughed federal employees work for the Pentagon.

Senate Majority Leader Harry Reid said he’d determine how to handle the House retroactive pay measure when the Senate receives it. Yesterday, he continued to blame Republicans for the government shutdown.

‘Alice in Wonderland’

Reid said if the shutdown lasts three or four weeks, the costs to the economy could rival those from Hurricane Sandy. He also likened the House’s pay plan to an “Alice in Wonderland” trick, saying Republicans spent the past two years seeking to undermine federal employees and their benefits.

“It’s really cruel to tell workers they’ll get their back pay once the government opens and then refuse to open the government,” Reid said, calling on the House to pass a spending bill without conditions.

The U.S. budget deficit in June was 4.2 percent of gross domestic product, down from 10.1 percent in February 2010 and the narrowest since November 2008, when Obama was elected to his first term, according to data compiled by Bloomberg from the Treasury Department and the Bureau of Economic Analysis.

Republican Proposal

Republicans’ most recent proposal for ending the shutdown would postpone for one year the mandate for individuals to purchase health insurance, mirroring the delay the administration granted to employers. It also would remove employer contributions toward health insurance for members of Congress, their staffs and political appointees.

“When we have a crisis like we’re in the middle of this week, the American people expect their leaders to sit down and try to resolve their differences,” House Speaker John Boehner said Oct. 4, insisting that Democrats make concessions on the 2010 Affordable Care Act.

Obama repeated his position last week that Boehner should split with the majority of House Republicans and vote on a short-term spending bill without policy conditions.

“If Speaker Boehner will simply allow a vote to take place, we can end this shutdown,” Obama said Oct. 4 during a lunchtime walk to a sandwich shop near the White House. “And a whole bunch of families not just here in Washington but all across the country will have the certainty that paychecks will be coming.”

Broader Agreement

A growing group of House Republicans, including Blake Farenthold of Texas and Dennis Ross of Florida, who both have ties to the limited-government Tea Party movement, say they’d support a broader agreement that doesn’t include Obamacare changes as the cornerstone. A third Tea Party-backed Republican lawmaker, Representative Doug Lamborn of Colorado, said he’s willing to back off demands on the health-care law.

“We’ve tried a lot of things and used just about every arrow in our quiver against Obamacare,” Lamborn said yesterday. “It has not been successful, so I think we do have to move on to the larger issues of the debt ceiling and the overall budget.”

Obama, in an interview released by the Associated Press yesterday, said he expects Congress will reach an agreement to raise the nation’s $16.7 trillion debt limit in time to avert a default.

Shutdown Effects

U.S. stocks rose on optimism lawmakers would come to an agreement on the shutdown and the debt ceiling, after BlackRock Inc.’s Laurence D. Fink and Pacific Investment Management Co.’s Bill Gross said they expect that the standoff will be resolved without a debt default.

The Standard & Poor’s 500 Index climbed 0.7 percent in New York Oct 4. Ten-year Treasury yields rose from almost a seven-week low, increasing four basis points to 2.65 percent, according to Bloomberg Bond Trader prices.

The effects of the shutdown continued to ripple through the government and the country.

The Bureau of Labor Statistics didn’t release its monthly report on unemployment last week, repeating what it did in the 1996 shutdown. U.S. Trade Representative Michael Froman said in a statement that the government wouldn’t be able to participate in next week’s second round of negotiations on the Trans-Atlantic Trade and Investment Partnership in Brussels.

Lockheed Martin Corp., the largest U.S. defense contractor, said it will furlough about 3,000 employees on Oct. 7 because of the effects of the shutdown, including the inability of workers to get to their jobs in shuttered federal facilities and a halt to government inspections.

‘Even Care’

Other government services continued, including Social Security benefits, mail delivery and air traffic control.

Representative John Fleming, a Louisiana Republican, said Boehner told members Oct. 4 that he had no intention of “rolling over” to Democrats’ demands for spending and debt-limit bills without policy conditions. Fleming said his constituents aren’t concerned about the shutdown.

“All they want to talk about was the drag of Obamacare,” Fleming told reporters. “I don’t think many of my constituents even know that there is a shutdown, or even care.”

House Republicans continued their strategy of passing bills to fund parts of the government, such as national parks, weather monitoring and infant nutrition.

Republicans’ best hope was to keep sending piecemeal bills and wait for public sentiment to change, said Representative Hal Rogers of Kentucky, chairman of the House Appropriations Committee.

“The public is going to finally say to the president, ‘Look, at least sit down and talk,’” he said.

Veto Threat

The Obama administration has threatened to veto the separate spending measures. Giving in now would only embolden Republicans to seek more concessions, said Senator Charles Schumer, a New York Democrat.

“The hope is maybe once the Tea Party has realized it’s not getting its way on shutting down the government, that they won’t try the same stunt on the debt ceiling,” Schumer said. “If they do, by the way, the heat on them will be much, much greater than it is now.”

The U.S. will run out of borrowing authority on Oct. 17 and will have $30 billion in cash after that. The country would be unable to pay all of its bills, including benefits, salaries and interest, sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

Boehner Strategy

Boehner said he doesn’t want the U.S. to default on its debt. He also said he will reject Obama’s call for a debt-limit increase free of policy conditions.

“If we’re going to raise the amount of money we can borrow, we ought to do something about our spending problem and the lack of economic growth in our country,” he said.

Last month, Boehner outlined a debt-ceiling strategy that included lighter regulations, cuts in entitlement programs and approval of TransCanada Corp.’s Keystone XL pipeline.

The outline also called for changes to Medicare and eliminating social services block grants. Also being considered was a proposal to eliminate a requirement that gives regulators the authority to seize and dismantle financial firms if their failure could damage the stability of the U.S. financial system.

(Corrects figure on budget deficit as a percentage of GDP in ninth paragraph. For more on the shutdown, see EXT2.)
Before it's here, it's on the Bloomberg Terminal.