When House and Senate lawmakers kicked off formal budget negotiations this week for the first time since the government shutdown ended, both Republicans and Democrats said replacing sequestration, the blunt across-the-board budget cuts, with an alternative plan would be a top priority.

“There is clear consensus that this is a terrible way to cut spending,” committee co-chair Patty Murray (D-Wash.) said in her opening statement. “So the question is no longer whether sequestration should be replaced — but how. ”

Without a deal to avert sequestration by January, a cap on agency funding will be lowered to $967 billion, split about evenly between Defense and nondefense spending. Going into the conference committee, the Senate Democratic spending plan calls for replacing sequestration with alternative deficit-reduction measures — raising the cap to $1.058 trillion. The House budget, authored by Rep. Paul Ryan (R-Wis.), the committee’s co-chair, lives within the post-sequestration caps, but boosts funding for Defense beyond what the law allows.

At the budget conference committee, lawmakers appeared no closer to bridging the divide over how to pay for a sequester replacement.

Democrats continued their push for a “balanced approach” saying they won’t consider structural changes to entitlements, such as Medicare and Social Security, without also looking at revenue increases. Republicans are dead set against raising tax rates.

With such a small slice of federal spending remaining up for grabs, where else can budget negotiators turn to for savings? The answer to that question has left federal-employee unions and advocacy groups with a familiar sinking feeling.

Federal pay, benefits on the table?

“Regardless of what they’re talking about — short-term or long-term, taxes or no taxes, entitlements or no entitlements — we are always aware that federal employees and the federal community are going to be a part of these discussions,” said Jessica Klement, the legislative representative for the National Active and Retired Federal Employees Association (NARFE).

So far, budget negotiators have been tight-lipped on specifics. In their first meeting in the basement of the Capitol Wednesday, members gave only brief opening statements. They won’t meet again until Nov. 13.

Still, federal fears have settled on two areas of concern: forcing employees to pay more for their retirement benefits and an extension of the pay freeze.

Ryan’s House-approved budget has included increases to existing federal employees’ retirement contributions for several years running. The latest version of the Ryan budget calls for federal employees to contribute 5.5 percent more toward their retirement for a savings of $132 billion over the next decade.

Federal employees in the current retirement system hired before the start of 2013 contribute 0.8 percent of their pay toward their federal pensions. New federal hires must contribute 3.1 percent because of a deal passed by Congress last February as part of the payroll tax extension.

The Senate budget plan eschews further changes to federal retirement and proffers reduced contractor compensation costs as an alternative.

Complicating matters, however, is the fact that President Barack Obama has also called for increases to federal workers’ retirement contributions, albeit on a smaller scale. The White House’s 2014 budget proposal recommended a 1.2 percent increase phased in over three years.

“When the President puts it in this budget and it’s been in Paul Ryan’s budget for years now — when you have that combined — I don’t see how it can’t not be on the table,” Klement said.

American Federation of Government Employees President J. David Cox wasted no time in responding to the proposal, issuing a press release Wednesday calling any changes to retirement contributions “robbery, plan and simple.”

Retirement benefits are part of the deal that employees sign up for when they enter federal employment, said Jacque Simon, AFGE’s public policy director, in an interview with Federal News Radio. “And suddenly changing these terms as part of some big poker game between President and the Congress is entirely inappropriate,” she added. “These benefits belong to the federal employees.”

Pay raise in jeopardy?

With a second round of steep budget cuts poised to hit agencies, federal-employee groups are also growing concerned Congress may halt a scheduled pay increase.

The short-term funding measure passed by Congress two weeks ago that ended the government shutdown clears the way for the 1 percent pay raise proposed by the President to go into effect. However, Congress didn’t approve any additional funding to cover the pay bump.

“Since Congress hasn’t appropriated this money, they have to find this money” in their existing budgets, Klement said, which may be hard to do if sequestration continues apace next year.

Agencies have typically absorbed the costs of pay increases in the past when Congress hasn’t approved additional funding, AFGE’s Simon said. “Agencies have a tremendous amount of discretion in how they absorb any kind of costs or decrease in funding,” she said. Foregoing a pay raise for the fourth year in a row would be a “highly political, unjustifiable and unwarranted decision,” she added.

Still, Congress may bristle at the idea of agencies increasing employee pay — however slightly — at the same time they furlough employees due to a second round of sequestration.

What’s worse for feds: Deal or no deal?

It’s important to note that none of the federal-specific proposals have been officially proposed or even discussed publicly by committee members yet.

Given Congress’ recent track record with deadline-driven deficit-cutting committees, there’s no guarantee lawmakers will even be able to come to a deal to stop the automatic sequestration cuts from remaining in effect.

In such a case, the fallback position for Congress would likely be to grant agencies more discretion in how the cuts are applied, Sen. Pat Toomey (R-Pa.) suggested.

“If they need to make these spending cuts to live within the caps, let’s allow them to use the common sense that every business owner and family would use: Cut the least important things, preserve the most important things,” he said at Wednesday’s meeting. “It is not true that all federal spending is equally important — we know that. And so let’s give the administration some flexibility to manage this.”

The prospect of sequestration continuing into a second year is certainly a bitter pill to swallow for federal employees. The cuts have damaged agencies’ missions and eroded employee morale.

But it’s not at all clear any of the alternatives are preferable, federal groups argue.

“I don’t think there’s any group of Americans that dislikes sequestration more than federal employees,” Simon said. “But there’s absolutely no justification for switching one bad policy — sequestration — for another equally bad policy.”

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