What a lapse in funding might look like in October of 2023

The crazy weather throughout the country seems to be reflected in Congress. On recess, when it returns it will have 12 working days to workout a regular federal budget for 2024. Ain’t gonna happen. Joining the Federal Drive with Tom Temin  to explore the possible consequences, the vice president for policy and programs at the National Active and Retired Federal Employees Association, John Hatton.

Interview Transcript:

Tom Temin And it looks more and more like, because of political developments in the short time period, there could be a lapse. But my perception is that lapses in appropriation really don’t equate with much of a shutdown. It’s just policy procurement office rats that don’t have to go in or proscribed from going in. But so many of the operational external federal employees have to keep working.

John Hatton Yeah, federal agencies will keep, quote unquote, essential employees working with them waiting for their next paycheck if it goes to the pay period and that being delayed. Meanwhile, you have a lot of people still sent home, not working, having backlogs of work kind of build up. And that is just basically a waste of taxpayer money, because now there’s actually a piece of law that says once people go back to work, if they’re furloughed due to a shutdown, you’re guaranteed back pay. In the past, that had been the practice every time, every new appropriation bill that passed after a shutdown would provide people back pay. To me, it’s really a complete waste of taxpayer money to make some type of political point by some contingent in Congress that never actually gets what it wants. There’s never been a shutdown where the person or the group of people pushing for the shutdown for some policy concession have ever actually gotten that policy concession. So to me, it’s really just a waste so that certain people can get on TV, have their base be riled up and enjoy them talking about it. And meanwhile the rest of the American public suffers. You have national parks that close down. You have businesses that rely on income from people going to those parks. You have people that are going to them that have canceled vacations. That’s just one particular example of how it’s a waste and how it impacts American citizens.

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Tom Temin And as you say, it doesn’t save money because the federal employees correctly do get paid when they get back to work. But it looks like a greater possibility this year than simply a continuing resolution from the signs are.

John Hatton Yeah, there’s definitely a contingent. The House Freedom Caucus that is pushing for basically reversal of the budget deal that got signed into law, the Fiscal Responsibility Act, that sets spending caps for the next two fiscal years. And they really want to go back to fiscal year 22 levels, particularly for non-defense spending, which would be a major cut. And so they’ve at least forced the speaker of the House, and the Appropriations Committee, to pass appropriations bills out of committee. And they’re trying to get them passed on the floor that would write to those fiscal year 22 levels. That’s just not going to fly with what the Senate’s doing, with what the White House wants to do. It’s not the agreement that was put into place. The Senate is going forward with various bipartisan bills that are to those spending caps. They came out of committee with unanimous support. So we’re going to have to see if the speaker is able to get bills through the House that are based on that bipartisan consensus in the Senate or if he’s going to be pushed into a shutdown from his House Freedom Caucus. And so that’s what we’re going to wait and see. I’m somewhat optimistic that given the strong bipartisan support in the Senate, that we can avoid a shutdown, that the Senate can pass some bills, send them to the House, and those are bills that can come to the House floor. Thus far, they’ve only passed one bill out of the House. They’ve been unsuccessful in trying to move other bills, weren’t able to get the votes for a rule. And so if the speaker can show his caucus that, look, we can’t even pass our own bills right now, we have these bills coming from the Senate, there’s no reason to have a shutdown. I think we can get past this particular threat, but we’re not past it yet. And there’s certainly a contingent there in the House that does not want to move these bills.

Tom Temin Right. So we won’t know anything until after Labor Day. It’s a couple of days after Labor Day I think that they don’t actually get to work. So again, we get back to that 12 days, plus they have a few other things on their plate that from their point of view, or even more important in some sense than appropriating the money to keep the government running. Something else for feds to worry about are legislatively proposed changes that would restrict or change what’s available to federal investors in the Thrift Savings Plan. What do you see for some of those?

John Hatton Yeah, we’re seeing more and more politics enter into the investment decisions by the thrift savings plan under the argument this is taxpayer money. And I don’t think this is taxpayer money. Once you have earned it and it’s into your retirement account, it’s your money, not taxpayer money. You’ve gotten that in compensation for your work. And so like anybody else’s 401k, you should be able to invest that like anybody else’s retirement funds. You should be able to invest that as you wish. There’s been a couple efforts in Congress to kind of restrict that. The first was language in the House, Financial services and general government appropriations bill that would prevent investment in anything that has criteria focused on environmental, social and governance criteria for investment versus basic fiscal criteria or financial criteria. The concern there is none of the TSP core funds do that, and I don’t think that should be entered into the TSP core funds. But the mutual fund window has 5,000 various funds, and for the TSP to put this burden on them, according to them, to be able to monitor all these funds for all their various investment criteria would prevent them from, they wouldn’t be able to do that. They would have to withdraw the mutual fund window. So all these different investments, not just ESG investments, but if you want to invest in commodities, you want to invest in real estate, you wouldn’t have that available via the mutual fund window due to this amendment. Now, I don’t think this is going to get passed into law. But then on the other side in the Senate, Marco Rubio (R-Fla.) has tried to restrict any investments in China. And that may be a well intentioned proposal, but currently the I Fund is invested in Hong Kong. So in Hong Kong is now part of China. So the I Fund, if that amendment had passed, it did not. But it did get 55 votes on a 60 vote threshold. If that investment had passed, the I Fund would right now cease to exist, because they were not allowed to invest in Hong Kong based securities. And currently, even if one could eventually be created in the future, currently, there’s no major index for international funds that invest money that excludes Hong Kong from their investments. And the same concerns with the mutual fund window would occur with monitoring Chinese investments. And so, again, I think it’s the politics of China entering these investment decisions. They’re not trying to restrict, let’s say, investments in Apple, which of course invests in China, investments in other U.S. companies invest in China. And they’re saying this is taxpayer funds, but they’re not investing, they’re not restricting these investments from other U.S. citizens.

Tom Temin And in practice, I mean, this  [Environmental, Social, and Governance (ESG)] is sort of less than meets the eye, because people trade carbon credits. It’s usually just sort of an exercise in fulfilling what looks like a nice social construct. But, I mean, ultimately, you would think feds or anybody investing their own hard earned money, as you put it, and it is their money. It’s not really the government’s money, except insofar as it covers the government’s debts. Sometimes when the debt ceiling isn’t raised, but it goes back to the people that whose money it is. But you would think ESG is a nice idea, but if you’re saving for retirement, you really want the best return, even if it’s not ESG. And so, TSP’s responsibility is return and not a social construct.

John Hatton Right. And that’s what guides the core TSP funds responsibilities for providing those options, is to have a fiduciary standard that does not take into account ESG criteria. Now, the mutual fund windows, you can take your money outside of those core funds and invest in whatever you like. And that was created in part to prevent people from taking their money out of the TSP, because they wanted to invest their money in something different. And that might be ESG. And that’s the basic principle, is that you should do what you want with your money. The TSP is not going to necessarily create a fund for you that may not be based on that fiduciary standard, but you can go ahead and get that ESG or whatever else. And so that mutual fund will provide that additional flexibility to say, this is your money. TSP is going to provide their best guidance on what’s a good investment. But if you decide that’s wrong, you still have that option. And I think that’s a good balance without having, I think the concern with these two proposals and other legislation in Congress that would say, let’s add an ESG core fund or something, is that more and more that enters politics into the realm of these investment decisions that should be without politics and based on fiduciary standards. And the concern is if you do this for China, if you do this for ESG, then there’s going to be, the other side of the aisle is going to say you have to have ESG, not we can’t invest in fossil fuels or, we can’t invest in a company that covers abortion services. So you really go down a really slippery slope when you start talking about these restrictions from Congress into what the TSP does.

Tom Temin And just a final question I wanted to ask you about those big well-publicized raises for Transportation Security Administration employees, principally the Transportation Security officers, the TSOs. This is a long and welcome development, isn’t it?

John Hatton Yes, very much so. The TSA employees have not had the kind of same level of pay as GS schedule, for example. And in the last year’s appropriations bill, pay raises were funded. And so this is finally being implemented. People will get very welcome pay raises. It should help recruitment and retention of the TSA, which has been a major problem with turnover reaching just very high numbers. And so good for the employees at the TSA now, good for the agency in terms of recruitment and retention, and good for the American citizen in terms of making sure you have an agency that’s staffed by people that are paid appropriately and then have experience because you’re able to keep them.

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Tom Temin And what does NARF’s take on the latest gambit from the White House to prod agencies to get going with their return to the office plans? Because the latest memo that got so much notoriety basically was just underscoring the April memo. It just did a two pages instead of 19 pages of incomprehensible stuff. But it doesn’t really change what the policy is and there is no single policy. So what should happen here?

John Hatton I think it’s federal agencies should still retain that flexibility to set their policies. And the White House can kind of have some influence here and nudging agencies to kind of adopt these renewed policies post-pandemic that are a little bit more permanent. But they should still be able to take into account that some jobs are different than others, that some jobs can be done via remote work, that employee performance and engagement can be still high via remote work. So I think the White House should be striking a balance, and we’ll have to see if it’s putting its thumb too hardly on the scale in one direction or the other. But I think it’s a question that every employer in the country is dealing with, in terms of setting their return to work policies and how you strike that balance and realizing that there’s lessons learned from the pandemic that, yes, we can work from home, but maybe there are still some benefits to in-office work as well. So, it’s tough to have a single answer for something that, honestly, no one really has a good single answer to. And so I think obviously, the White House is putting their thumb a little bit on a scale here of going back into the office, it’s just how hard are they pushing.

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